Businesses need regular cash inflows to take care of their day-to-day operations. If the working capital requirements are not properly met for a business, it could severely affect its smooth business operations. Cash credit loans, or working capital loans, are developed to take care of these business requirements. The business may use these funds for any kind of operational expenses including raw material procurement, machinery purchase, overhead costs, debt settlement, inventory costs, etc.
- One can avail a cash credit loan to meet the working capital requirements of a business.
- The borrower will have to provide collateral or security in order to avail a cash credit loan.
- Interest is levied only on the loan amount availed by the borrower and not on the credit amount sanctioned.
- Cash credit loan is a short-term loan whereas decided by the lender, the loan can be repaid on a monthly or on a quarterly basis.
- The applicant has the option of withdrawing the required amount as sanctioned by the bank in order to meet their day-to-day needs.
- A cheque book is issued by the bank in the name of the company, where the latter can withdraw the required amount as per its requirement.
- The borrower will have the option of repaying the loan on either a daily or weekly basis, or as per the repayment structure designed by the lender.