Cash Credit Loan - Features, Eligibility, & How to Apply

In today's fast-paced world, individuals and businesses often require quick and flexible financing solutions to meet their financial needs. One such option is a Cash Credit Loan, which provides access to funds on a revolving basis. This blog aims to provide a comprehensive understanding of Cash Credit Loans, covering essential aspects such as interest rates, features, eligibility criteria, required documents, and the application process. Read on to learn more about Cash Credit Loans, its features and how to apply.

What is a Cash Credit Loan?

A Cash Credit Loan is a form of short-term financing provided by financial institutions, typically banks, to individuals and businesses. It functions like a line of credit, where borrowers can withdraw funds up to a predetermined limit based on their creditworthiness.
Unlike term loan, Cash Credit Loans do not have a fixed repayment schedule, allowing borrowers to access funds as needed. The interest is charged only on the amount utilised and not on the entire credit limit.

Features of Cash Credit Loan

Cash Credit Loans offer several features that make them an attractive financing option. Let us look at the features that make Cash Credit Loans ideal for managing working capital needs and cash flow fluctuations:

• Cash Credit Loans offer a revolving credit facility, allowing borrowers to access funds as per their requirements within a predetermined credit limit.
• Borrowers can utilise funds as needed, making it an ideal financing option for managing working capital needs and cash flow fluctuations.
• Unlike Term Loans, Cash Credit Loans do not come with a fixed repayment schedule. Borrowers can repay the borrowed amount at their convenience, reducing the burden of strict deadlines.
• Interest is charged only on the amount utilised from the cash credit limit and not on the entire credit limit, resulting in potential interest savings for the borrower.
• A Cash Credit Loan offers fast access to funds for individuals and businesses to address immediate financial needs.
• The credit limit for Cash Credit Loans is determined based on the borrower's creditworthiness, income, business turnover (for businesses), and other relevant factors.
• Borrowers have the option to prepay the loan without any penalty, allowing them to reduce their interest burden and close the loan ahead of schedule.
• These Loans can be availed as secured or unsecured loan, depending on the borrower's profile and the lender's policies.
• Cash Credit Loans cater to the financing needs of both businesses and individuals, providing them with the necessary financial flexibility.

It is important to note that the specific features of these loans may vary depending on the lending institution and the terms and conditions of the loan.

Cash Credit Loan Eligibility Criteria

The Cash Credit Loan Eligibility may vary depending on the financial institution. It is advisable to check with the lending institution to understand the precise eligibility requirements. Following are some of the most important eligibility criteria you must fulfil to avail of a Cash Credit Loan:

• The business owner must typically be at least 25 years old, although this criterion can vary among different lenders.
• Various entities qualify for Cash Credit Loans, including business owners, companies, cooperative societies, MSMEs (Micro, Small, and Medium Enterprises), sole proprietorships, partnerships, and Limited Liability Partnerships (LLPs).
• Most lenders stipulate a minimum operational period for a business, often ranging from 2 to 3 years.
• Lenders assess the credit score and past credit history of the business to gauge its repayment capacity.
• Applicants are generally required to furnish financial statements such as balance sheets, profit and loss statements, and tax returns.
• Certain lenders may demand collateral, such as inventory or equipment, to secure the loan.
• The business's revenue generation and cash flow are crucial factors in determining eligibility for a Cash Credit Loan.

Documents Required for Cash Credit Loan

When applying for a Cash Credit Loan, borrowers are typically required to submit certain documents. The specific documentation may vary based on the borrower's profile and the lending institution's policies. Here is a general list of identity proof you need to produce when applying for the loan:

1. A government-issued photo ID and address proof are required, such as a bank statement or utility bill, of the borrower or the business owner.
2. The owner needs to provide proof of the existence of the business, such as a GST certificate, PAN card, licence, etc.
3. The lender will require the latest bank statements of the primary operating account for business.
4. A proper business plan and a detailed profile of the business, including its history, products or services offered, and plans are required by the lender. 
5. The lender will require the latest financial statements of the business, such as balance sheet, tax return, and profit and loss statement.
6. The lender will usually require documents related to collateral, such as property deeds or proof of ownership.

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How to Apply for a Cash Credit Loan?

To apply for a Cash Credit Loan, individuals and businesses can follow these general steps:

• Step 1: Research and Compare

Research different financial institutions and compare their offerings, interest rates, and terms to choose the most suitable option.

• Step 2: Gather Documentation

Collect all the necessary documents required for the loan application process.

• Step 3: Visit the Lender

Visit the selected financial institution's branch or website and initiate the loan application process. Provide accurate information and complete the required forms.

• Step 4: Submit the Application

Submit the application form along with the required documents for verification.

• Step 5: Verification and Approval

The lender will verify the provided information and assess the borrower's creditworthiness. If approved, the loan will be sanctioned with a predetermined credit limit.

• Step 6: Utilise the Funds

Once the loan is approved, borrowers can withdraw funds per their requirements within the approved credit limit.

Interest Rate on Cash Credit Loan

A Cash Credit Loan generally comes with steeper interest rates compared to other loan options. This increased risk stems from the absence of collateral. Typically, interest rates fall within the range of 12% to 18% per annum. 
However, several factors influence the exact rate you will receive:

• Loan Amount: Larger loans might attract slightly lower rates.
• Your Creditworthiness: A strong credit history can lead to more favourable rates.
• Loan Term: Shorter repayment periods usually translate to lower interest rates.
• Lender: Different lenders offer varying rates based on their internal policies and risk assessment.

It is crucial to compare offers from multiple lenders before making a decision. Choose the option that aligns best with your financial situation.

Should You Take a Cash Credit Loan or a Cash Loan?

When it comes to choosing between a Cash Credit Loan and a Cash Loan, it's essential to understand your specific financial needs and circumstances. These loans are intended for businesses to manage their expenses, so you can't use the loan amount for personal use. 
A Cash Loan can be used to fulfil any financial requirement, such as paying bills, travel expenses, or business costs. Additionally, unlike a Cash Credit Loan, a Cash Loan does not require collateral or extensive documentation. Therefore, it is recommended that you compare the features and benefits of both loan types before making a decision.

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How to Apply for the Best Option Online? 

These loans can be a great option for businesses but it is not a cost-effective solution. There are several other options available in the market as an alternative. A Business Loan is one such option, and Poonawalla Fincorp emerges as one of the most trusted lenders. Follow these steps to apply for a Business Loan:

• Step 1: Click the designated 'Apply Now' button to begin your loan application.
• Step 2: Carefully complete the online application form, ensuring all required details are filled accurately.
• Step 3: Upload any necessary documents as prompted, such as identity proof, income verification, or business registration (if applicable).

Upon successful verification of your information and documents, the loan amount will be swiftly deposited into your nominated bank account.

To Conclude

A Cash Credit Loan allows individuals and businesses the flexibility to manage their financial needs effectively. However, it is crucial to choose a reliable and customer-centric financial institution when considering such financing options. Poonawalla Fincorp is one such institution that provides a range of Business Loan services to cater to the diverse needs of borrowers. 'Apply Now' and fulfil all your urgent business capital needs. 

Frequently Asked Questions About Cash Credit Loan

1.    What type of loan is cash credit?
Cash Credit Loans are typically secured loans where companies are required to pledge collateral to obtain financing from a bank. The loan tenure for Cash Credit Loans usually spans up to 12 months.

2.    What determines the limit on Cash Credit Loans?
The limit on Cash Credit Loans is determined by the lender and the eligibility of the business seeking the loan. Banks set the borrowing limit for companies to address their working capital needs.

3.    What fees are associated with Cash Credit Loans?
Major lenders commonly charge a processing fee on the loan amount. Additionally, missing scheduled payments may incur penal charges. Other charges, such as commitment charges, stamp duty charges, stock audit charges, conversion charges, and cheque bounce charges, vary among lenders.

4.    How does a Cash Credit Loan differ from an overdraft?
Cash Credit Loans are secured against current assets, while overdrafts are typically based on the borrower's credit score and investments. Cash Credit Loans typically have a one-year tenure, whereas overdrafts may have shorter terms, not exceeding one year. Overdrafts are often provided against existing accounts, while Cash Credit Loans may necessitate the opening of a new account.

5.    Can you provide an example of a Cash Credit Loan?
For instance, if a business requires financing, it can apply for cash credit up to the maximum borrowing limit determined by the lender. When funds are withdrawn, the borrower is required to pay interest on the utilised amount rather than the entire credit limit available.