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Cash Credit: Definition & Advantages of Cash Credit | What is Cash Credit?

Cash Credit Overview

Cash credit is a loan provided by banks for businesses to meet their working capital needs up to a predetermined amount. 

Key Aspects of Cash Credit

  1. Short-term loan for working capital needs

  2. Usually lasts for a year, can be extended

  3. Flexible repayment options possible

  4. Interest is applied to the borrowed amount

  5. Collateral may be required

  6. Additional fees may apply

Cash Credit Operation

It appears under "Short Term Loans" in the “liability” section of the balance sheet. 

Eligibility for Cash Credit

  1. Individuals, Limited Liability Partnerships

  2. Registered Trusts

  3. Co-operative Societies, Public Limited Companies

  4. Partnership Companies

Required Documents for Cash Credit

  1. Identity Proof, Address Proof, Recent photo

  2. Banking records

  3. Financial Statements, Application Form

  4. GST and Income Tax Returns

  5. Commercial proof, Commercial address proof

  6. Partnership Deed, Articles of Association if applicable

  7. Collateral information

  8. Information about current loans and liabilities, GST Certificates

Benefits of Cash Credit

  1. Helps meet working capital needs

  2. Easy access to cash

  3. Quick processing

  4. Perpetual term

  5. Flexible repayment options

  6. Lower interest cost

  7. Multiple withdrawals allowed

  8. Interest is tax deductible

Factors Influencing Cash Credit

  1. Past performance of the borrower

  2. Amount requested by the borrower

  3. Borrower's repayment capacity

  4. Current assets and liabilities of the business

  5. Security or collateral

  6. Credit history of the borrower