What is Cash credit?
Cash credit is a type of short-term loan facility provided by banks to businesses. It allows the borrower to withdraw funds from their account up to a specified credit limit. The borrower can use the funds as needed and repay the amount within a predetermined time frame. Interest is charged only on the utilized amount, offering flexibility and cost-effectiveness. Cash credit is commonly utilized to manage working capital requirements, such as purchasing inventory, paying operational expenses, or addressing cash flow gaps.
What is Overdraft?
An overdraft is a financial facility provided by banks that allows an individual or business to withdraw more money from their bank account than what is available as a balance. It provides a short-term borrowing option in which the account holder can access funds beyond their account balance, up to a pre-approved limit. Interest is charged on the overdrawn amount, and repayment is typically expected within a specified period. Overdrafts provide flexibility in managing cash flow and handling unexpected expenses or temporary financial gaps.
Eligibility Criteria for CC/OD
Eligibility criteria for Cash Credit (CC) and Overdraft (OD) facilities may vary among banks. However, there are general factors that are considered for evaluating eligibility:
- Business Entity: The applicant should have a registered business entity, such as a sole proprietorship, partnership, or private limited company.
- Financial Statements: Banks assess the financial health of the business through audited financial statements, including income statements, balance sheets, and cash flow statements.
- Creditworthiness: The applicant's credit history, repayment track record, and existing loan obligations are considered.
- Collateral: Banks may require collateral, such as property, inventory, or other assets, to secure the CC/OD facility.
- Business Vintage: Typically, businesses with a track record of operation for a certain period, such as three years, are preferred.
- Cash Flow: The business's ability to generate sufficient cash flow to meet repayment obligations is evaluated.
These criteria help banks determine the creditworthiness and risk profile of the applicant, influencing their decision on approving a Cash Credit or Overdraft facility.
Benefits of CC/OD
Cash Credit (CC) and Overdraft (OD) facilities offer several benefits to businesses and individuals:
- Flexibility: CC/OD provides flexibility in managing cash flow by allowing borrowers to withdraw funds as needed, up to the approved limit.
- Cost-effective: Interest is charged only on the utilized amount, making it a cost-effective borrowing option.
- Working Capital Management: CC/OD helps businesses manage their working capital requirements, such as purchasing inventory, paying salaries, or meeting short-term expenses.
- Cash Flow Management: It assists in bridging temporary cash flow gaps, ensuring uninterrupted business operations.
- Customizable Repayment: Borrowers have the flexibility to repay the borrowed amount based on their cash flow, reducing financial stress.
- Quick Access: CC/OD facilities provide quick access to funds, ensuring timely availability during emergencies or unexpected expenses.
Overall, CC/OD facilities enable businesses and individuals to effectively manage their financial needs, providing convenience, flexibility, and liquidity.
Documents Required for CC/OD
When applying for a Cash Credit (CC) or Overdraft (OD) facility, banks typically require specific documents to assess the borrower's creditworthiness and make an informed lending decision. The documents may include:
- Application Form: A duly filled application form with the borrower's personal and business details.
- Identity Proof: KYC documents, such as PAN card, Aadhaar card, or passport, to verify the borrower's identity.
- Address Proof: Documents like Aadhaar card, utility bills, or rent agreement to establish the borrower's address.
- Financial Statements: Recent audited financial statements, including income statements, balance sheets, and cash flow statements, to evaluate the borrower's financial position.
- Bank Statements: The borrower's bank statements for the previous six months to assess the account activity and cash flow.
- Business Proof: Registration documents, licenses, permits, or certificates validating the existence and nature of the business.
Collateral Documents: In the case of secured CC/OD, collateral-related documents such as property papers or hypothecation of assets may be required.
It's important to note that specific document requirements may vary among banks, and borrowers should consult with the respective lender for the precise list of documents needed for a CC/OD facility application.
How we can help you to get CC/OD
We can assist you in obtaining a Cash Credit (CC) or Overdraft (OD) facility by providing valuable guidance and support throughout the process. Our services include helping you understand the eligibility criteria, gathering the required documents, and explaining the application process. We can offer insights into the different options available, guide you in preparing a strong application, and increase your chances of securing a CC/OD facility that suits your financial needs. Our aim is to simplify the process and help you access the necessary funding for your business requirements.