Cash credit loans have emerged as a vital source of short-term financing for businesses to meet their working capital needs. However, these loans come with specific features and eligibility criteria that borrowers must understand. This article explores all the key aspects of cash credit loans to help you make an informed borrowing decision.
What is a cash credit loan?
A cash credit loan is an operating capital loan given by banks and financial institutions to business entities against movable assets. It provides access to ready cash to meet expenses related to day-to-day business operations. The outstanding loan amount can fluctuate based on the borrower’s requirements and repayments.
Salient features
Here are some notable features of a cash credit loan facility:
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- Revolving credit facility: You can freely draw and repay any amount within the sanctioned credit limit. There is flexibility in usage.
- Only pay interest on used amount: You only need to service interest costs on the utilised loan amount, not on the entire sanctioned amount. This makes it cost-efficient.
- Part-prepayment at no extra cost: Borrowers can partially prepay the outstanding loan amount anytime without incurring any prepayment penalties, enabling efficient working capital management.
- Flexible tenures: NBFCs offer flexible repayment options on cash credit loans with tenures ranging from 12 months to 96 months.
- High-value working capital: NBFCs provide high-value cash credit loans ranging from Rs. 2 lakhs to Rs. 55 lakhs to eligible businesses without needing them to pledge any assets.
- Variable interest rates: The interest rate applicable on cash credit loans varies depending on factors such as your credit score, business vintage, income, and other creditworthiness metrics.
Cash credit loan eligibility
There are specific eligibility mandates for cash credit applicants:
- Business vintage: Only companies with at least 3 years of operations qualify for cash credit. Startups are often excluded.
- CIBIL Score: A minimum credit score of 685 is essential to demonstrate healthy credit behaviour and loan repayment track record.
- Age: The applicant needs to be minimum 24 years at the time of application and should not exceed 70 years of age at loan maturity.
- Citizenship: The applicant needs to be an Indian resident.
For any business, it is vital to assess working capital needs before considering a cash credit loan. When utilised judiciously, cash credit financing can be a valuable capital resource. Carefully examine prevailing interest rates and tenure options across lenders to make an informed financing decision. With financial prudence, cash credit limits can empower your business’s growth story.
