- Home
- Personal Loan
- Cash Credit Loan
What is a Cash Credit Loan?
Capital plays an integral role in the growth and expansion of any business. Along with options like raising funds and dipping into your savings, you can also use debt to fund your business.
A cash credit loan is one such solution that can offer short-term personal loan to your company and help you meet any kind of capital requirements. The rise in digitalization has taken it a step further with the introduction of online credit loans where you can get the funds you need without even visiting any branch.
But before you consider taking any credit loans online, it’s important to understand everything about it. And this page will precisely do that!
Features and Benefits of Cash Credit Loan
Taking an online credit loan is beyond the fact that it helps you meet your capital needs conveniently. These are some features and benefits you should be aware of:
Purpose of Loan
One of the features that makes online credit loans so convenient is the fact that there is no restriction on the end usage of the personal loan. Whether you want to invest in new inventory or expand your staff, you can use these funds anywhere you like, no questions asked!
Cash Credit Interest Rate
There is a cash credit interest rate that you have to pay while returning the loan. In most cases, the credit loan online is a revolving loan. This means you only have to pay interest on the money you borrow from your total cash credit limit.
Limit of Borrowing
The cash credit limit you’re approved for depends on many factors like the performance of the business, personal loan repayment, credit profile, etc.
Repayment Tenure
You withdraw funds from your available cash credit limit whenever you need and pay back only the borrowed amount according to the terms of borrowing your lender and you agree to.
Collateral Requirement
Credit loans online can be secured or unsecured, loan depending on the financial institution. If you’re taking an unsecured credit loan, you will not have to provide any assets like gold, jewellery, etc. against the money you borrow. On the other hand, you will have to provide collateral for a secured loan.
List of Required Documents for Cash Credit Loan
Keeping the documents you need to complete your application for an online credit loan handy can help you complete the process quickly. While the required documents can vary, these are some common requirements of most lenders:
Proof of Identity
PAN, Aadhaar card, Passport, etc.
Proof of Residence
Any utility bill, Aadhaar card, Passport, etc.
Proof of Business Operation
GST certificate, business license, etc.
Bank Statement of the Active Business Account.
Valid Financial Statements Like ITR or Balance Sheet.
Eligibility Criteria for Cash Credit Loan
It’s important to meet the eligibility criteria of a lender to be able to get instant access to credit. And the approval process is no different when it comes to getting a cash credit limit. While different financial institutions may have different criteria, these are some common requirements:
1) Minimum Age: Typically, you can apply for an online credit loan if you’re 25 years or above.
2) Type of entity: Based on the entity type, these are the people who can apply for an online credit loan-
- Any Individual
- Partnership Firm
- Limited Liability Partnership
- Registered Trust
- Private Limited Company
- Cooperative Society
3) Financial Records: You have to provide legitimate financial records like your tax returns or balance sheet so that the lender is able to determine your eligibility for the loan.
4) Credit Profile: A strong credit profile and a clean repayment history play a significant role in increasing your eligibility for the loan.
Cash Credit Loan Interest Rate
The cash credit limit personal loan interest rate depends on various factors like your credit history, the performance of the business, the risk associated with giving you a loan, etc. Since cash credit loans are mostly revolving loans, you only have to pay interest on the amount you borrow from the cash credit limit.
How does Cash Credit Help Businesses?
Whether you need funds to purchase more raw materials or are planning to expand your team, a cash credit loan can give you an extra nudge to finance your capital requirements.
Different individuals and businesses take a cash credit loan to fund their different capital needs. Some need it to maintain their inventory, and some to pay the salaries and rent of employees. And the best part about cash credit is that it’s a no-questions-asked loan. This means there’s no restriction on the end usage of the loan.
Disadvantages of Cash Credit Loans
Cash credit loans offer a flexible financing option for businesses, but they come with several disadvantages.
High Cash Credit Interest Rate
Cash credit loans often come with higher interest rates compared to traditional loans. Interest is calculated on the used loan amount, which can lead to higher costs.
Restrictive Cash Credit Limit:
The cash credit limit is based on the business’s current assets, which can restrict the amount of funds accessible and may not always meet the business’s financial needs.
Meticulous Account Management
Managing a cash credit account requires careful monitoring to avoid overutilization. Exceeding the limit can result in penalties and additional charges.
Challenges with Credit Loans Online
While online credit loans offer convenience, they often come with hidden fees and strict eligibility criteria, making them less accessible for some businesses.
Potential Hidden Costs
Businesses must be aware of potential hidden costs associated with online credit loans and ensure that the benefits they will receive will be better than the disadvantages.
How to Apply for a Cash Credit Loan?
To apply for a cash credit loan, follow these straightforward steps:
1) Evaluate Your Financial Needs: Determine the exact amount your business requires, ensuring it aligns with the cash credit limit provided by various lenders.
2) Check Eligibility Criteria: Verify the eligibility requirements, such as business vintage, turnover, and collateral needs. This can vary significantly between lenders offering credit loans online.
3) Gather Required Documentation: Prepare essential documents like business financial statements, tax returns, and proof of ownership of assets to be used as collateral. Having these documents ready can streamline the application process.
4) Compare Cash Credit Interest Rates: Research and compare the cash credit interest rate offered by different banks and financial institutions. This step is crucial to finding the most affordable option for your business.
5) Submit the Application: Apply through the lender’s website or visit their branch. Online credit loan applications often provide a quicker response, but ensure all information is accurate to avoid delays.
6) Loan Approval and Agreement: Once approved, carefully review the loan agreement, focusing on the terms, cash credit limit, and repayment schedule. Clarify any doubts before signing the contract.
Frequently Asked Questions
Should You Take a Cash Credit Loan or Cash Loan?
If you need capital or cash loan to invest in your business, then a cash credit loan is the perfect solution for your capital requirement.
What are the Purposes Against which I can Use a Cash Credit Loan?
One of the best parts about a cash credit loan is that there is no restriction on the end usage of this loan. Whether you want the funds to maintain inventory or purchase raw materials, you can use this loan anywhere you like.
What Type of Loan is Cash Credit?
Cash credit can be a secured or unsecured loan depending on the lender you choose.
What are the Collaterals that can Be Offered for a Cash Credit Loan?
The collateral that can be offered for a cash credit loan are raw materials, inventory or even finished goods.
How Many Times can I Withdraw From a Cash Credit Loan?
Once you’re approved for a cash credit loan, you can withdraw money from the limit whenever you need. There’s no limit on the number of withdrawals.
How to Repay a Cash Credit Loan?
You can repay your cash credit loan according to the repayment plan which you have agreed to with your lender.
How Must a Cash Credit Loan be Repaid?
The cash credit loan can be repaid monthly, quarterly, half-yearly or even yearly depending on the terms of borrowing of your lender.
What are the Charges Applicable to a Cash Credit Loan?
Different lenders have different applicable charges on the cash credit loan. But usually, you may have to pay an interest and processing fee on the loan. Depending on your lender, there may also be an additional charge associated with foreclosing your loan.
How is a Cash Credit Loan Different From an Overdraft?
Cash credit loans are credit facilities specifically for businesses; however, overdraft facilities are for both individuals and businesses.
What is the Limit on Cash Credit Loans?
Different lenders have different limits on cash credit loans. However, it can range anything from Rs. 1 lakh or Rs. 25 lakhs depending on the lender.
How is the Interest Rate Charged on the Cash Credit Loan?
The interest rate charged on the cash credit loan depends on various factors like the performance of the business, credit history, financial records, etc.