Cash Credit

Loans

Quick Definition

Cash Credit (CC) is a short-term loan facility provided by banks that allows businesses to withdraw money up to a sanctioned limit as per their working capital needs.

Detailed Explanation

Cash Credit is mainly used by businesses to manage day-to-day expenses like purchasing raw materials, paying salaries, and handling operational costs.

The loan is secured against inventory, receivables, or other assets, and interest is charged only on the amount utilized, not the entire limit.

Banks offer cash credit under regulations of the Reserve Bank of India.

Key Features of Cash Credit

  • Short-term working capital loan
  • Flexible withdrawals up to limit
  • Interest charged on used amount only
  • Secured against business assets

Cash Credit vs Overdraft

[Image comparing Cash Credit and Overdraft highlighting differences in eligibility and collateral]
  • Cash Credit: For businesses, linked to inventory/receivables
  • Overdraft: Can be for individuals or businesses, linked to account balance

Why Cash Credit Matters

  • Helps maintain business liquidity
  • Ensures smooth operations
  • Supports working capital management

Example

"A business has a cash credit limit of ₹10 lakh but uses only ₹4 lakh. Interest is charged only on ₹4 lakh."

← Back to Financial Dictionary