Cash Credit (CC)

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Definition

Cash credit is a short-term revolving facility where a bank provides a credit limit against pledged current assets — inventory, raw materials, or receivables. The business draws funds as needed and pays interest only on the utilized amount.

CC limits are reviewed annually based on turnover, stock statements, and financial performance. Interest rates link to MCLR or EBLR plus a spread. It is one of the most common working capital facilities for manufacturing, trading, and distribution businesses in India.

Frequently Asked Questions

How is interest charged on cash credit? ▾
Only on the amount actually utilized (drawn down), not the full sanctioned limit. This makes CC cost-effective for fluctuating fund needs.
What collateral is needed for CC? ▾
Typically secured against inventory, raw materials, or receivables (hypothecation). Some lenders may also require additional property collateral.
How is the CC limit determined? ▾
Based on working capital assessment — typically a percentage of inventory and receivables. For MSMEs, the Nayak Committee method suggests 20% of projected annual turnover.
Why It Matters

Cash credit provides flexible working capital funding aligned with business cycles. Interest only on utilization makes it cost-effective for fluctuating requirements.

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