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  • Cash Credit Loan

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  • 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.

    Companies that take cash credit loans must provide collateral to the lender. Even assets like inventory, work-in-progress goods, etc., can be hypothecated in returns for a cash credit loan. Businesses typically have a running account with a particular lender for cash credit loan and use funds from the account whenever the need for working capital arises. Let’s check out the different aspects of cash credit loans and the different lenders in the industry who offer these loans.

    Comparison of best cash credit loans in 2019

    Banks/Lender Interest Rate Maximum Loan Amount Maximum Loan Tenure
    ICICI Bank 8.76% to 15.6% p.a. Rs.5 crore 12 to 36 months (depending upon loan schemes)
    HDFC Bank Contact the bank for details Valuedraw – Rs.25 lakh
    Elitedraw – Depends on collateral
    Contact the bank for details
    IDBI Bank Contact the bank for details Varies based on the value of the collateral. Contact the bank for details
    Bajaj Finserv 18% p.a. onwards Rs.30 lakh 60 months
    Mahindra Finance Contact the company for details Rs.25 crore 36 months
    Oriental Bank of Commerce 9.25% p.a. onwards Varies based on the value of the collateral. 12 months

    Features of Cash Credit Loan

    • 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.

    ICICI Bank

    ICICI Bank is one of the top lenders in the private sector. There are different types of loan products available in the bank’s lineup. The bank offers cash credit loans to traders, manufacturers, and other business personnel with minimal documentation. It is possible to renew the cash credit facility if the track record of the borrower is satisfactory.

    Benefits and key highlights:

    • There are multiple working capital loans available with ICICI Bank depending upon the type of enterprise for which the loan is required.
    • Cash credit loans are available for proprietorship firms, partnership firms, public limited companies, limited liability companies, etc.
    • A business vintage of 12 months to 36 months is required to avail this loan.
    • The bank accepts residential, industrial, or commercial properties as collateral for the loan.
    Lender Name Processing Fee EMI (for Rs.1 lakh) Pre-Closure Charges
    ICICI Bank Rs.3,500 + GST Rs.8,734 (for 12 months) Nil

    HDFC Bank

    HDFC Bank is one of the major players in the banking industry in India. The bank offers various loans for individuals as well as businesses. When it comes to cash credit loans, there are two types of products available with HDFC Bank depending upon the loan quantum required by the borrower.

    Benefits and key highlights:

    • This loan is available for SMEs, traders, manufacturers, and other business institutions.
    • Borrowers can choose from a wide range of collateral options including residential properties, commercial properties, industries properties, stocks, book-debts, gold, etc.
    • HDFC offers dedicated relationship management for business owners who take these loans.
    Lender Name Processing Fee EMI (for Rs.1 lakh) Pre-Closure Charges
    HDFC Bank 1% of the facility amount subject to a minimum of Rs.7,500 N/A Nil

    IDBI Bank

    IDBI Bank has loan products suitable for individuals as well as companies. The bank offers cash credit loans to bridge the working capital requirements of businesses. These are secured loans offered against the hypothecation of various assets of the business organisation. Borrowers can open a running account and use the borrowed funds as per their requirements.

    Benefits and key highlights:

    • The drawing limit for this loan will be based on the current assets and liabilities of the borrower.
    • The borrower must submit the stock statement to the lender in the prescribed format.
    Lender Name Processing Fee EMI (for Rs.1 lakh) Pre-Closure Charges
    IDBI Bank Varies based on the loan amount N/A Nil

    Bajaj Finserv

    Bajaj Finserv is one of the most popular non-banking financial corporations in India. The company offers a diverse range of loan products for its customers. Its working capital loans help businesses take care of their immediate cash requirements. This loan is ideal for SMEs as well as seasonal businesses.

    Benefits and key highlights:

    • This cash credit loan helps customers take care of their business fluctuations and leverage their opportunities accordingly.
    • Loans are available round-the-clock with flexibility in withdrawals and repayments.
    • The company offers pre-approved loans that come with very minimal documentation and a simplified process.
    • Customers can use the online account of the company to keep track of their loans and repayments.
    Lender Name Processing Fee EMI (for Rs.1 lakh) Pre-Closure Charges
    Bajaj Finserv Up to 3% of the loan amount Rs.9,168 (for 12 months) Nil

    Mahindra Finance

    Mahindra Finance is a renowned brand when it comes to loan products in India. The company offers loans for small and medium business enterprises in India at affordable interest rates. You can use the working capital loan offered by the company to take care of your business needs. The loan is annually reviewed by the company and the terms and conditions are adjusted accordingly.

    Benefits and key benefits:

    • Cash credit loans are available for companies in select sectors like automobile, food, agri-processing, etc.
    • Borrowers must provide collateral details for the loan along with the list of documents to be submitted.
    • The company decides the loan quantum for the borrower based on various factors like requirement, collateral, credit score, etc.
    Lender Name Processing Fee EMI (for Rs.1 lakh) Pre-Closure Charges
    Mahindra Finance Contact the company for details N/A Nil

    Oriental Bank of Commerce

    The cash credit loans offered by Oriental Bank of Commerce are based on the types of business establishments. The interest rate is set by the bank as per the value of the collateral offered as security. You may contact the bank to know specific details about the working capital loan you can get for your business.

    Benefits and key highlights:

    • There are no processing fees charged on loans up to Rs.5 lakh.
    • The maximum loan amount available for a business is based on its turnover and the pledged collateral.
    • Manufacturing units must comply with the inventory norms to be eligible for a loan.
    Lender Name Processing Fee EMI (for Rs.1 lakh) Pre-Closure Charges
    Oriental Bank of Commerce Contact the company for details Rs.8,757 (for 12 months) Nil

    Eligibility for cash credit loans

    Some of the eligibility criteria outlined by lenders for cash credit loans are given as follows:

    • Most lenders require a minimum age of at least 25 years for the business owner. However, this criterion is likely to vary among the lenders in the market. You may have to contact the company to know the age limit required for this loan.
    • A business vintage of at least three years is good for securing this loan. Business vintage refers to the number of years the business has been in operation. This requirement is also likely to vary among lenders in the market. Some lenders provide loans for companies with a business vintage of just one year.
    • Some lenders expect businesses to have filed IT returns for at least one year. This proof must be submitted to the lender while applying for a loan.
    • Proprietorship firms, partnership firms, publicly traded companies, limited liability companies, etc., may apply for working capital loans. Some lenders have certain restrictions on the type of companies that can apply for working capital loans. You can contact the lender to know more details about this.
    • The borrower must provide collateral to be eligible for a cash credit loan. Most companies accept real estate properties as collateral for working capital loans. Other assets like inventory, work-in-progress goods, raw materials, etc., can also be pledged as security to avail this loan.

    Documents required for cash credit loans

    The applicant must submit the following list of documents to avail a cash credit loan:

    • Financial statements certified by a CA
    • Bank account statement for at least 6 months
    • IT returns for at least a year
    • Loan repayment record (if applicable)
    • Proof of collateral
    • Other relevant documents requested by the bank

    Things to consider while applying for cash credit loans

    The borrower must consider the following things while applying for a cash credit loan:

    • The interest rates for these loans are determined by the value of the collateral. If the value of the collateral is high, the applicant can negotiate a lower interest rate for working capital loans.
    • There could be certain restrictions on the type of collateral accepted by lenders. Some lenders do not accept inventory or raw materials as collateral. You need to check with your lender to know more about this.
    • Most lenders in the market offer running credit for working capital requirements. Here, businesses can withdraw from their accounts whenever the need arises.
    • Since this facility is offered on the basis of running credit, a good track record of loan repayment is necessary to get further benefits. Lenders review it every year and change the terms and conditions of the account as per the loan repayment record.
    • Lenders typically have some restrictions on how the loan amount can be spent. Businesses can use the money for any kind of working capital requirements. However, it cannot be used for other purposes like long-term investments, personal needs, etc.

    How to apply for cash credit loans?

    Many lenders now allow online applications for cash credit loans. You have to visit the website of the bank and apply for a loan based on your requirements. The process is easier if you borrow from the bank where you have your business account. You may also visit the company directly and apply for a cash credit loan.

    FAQs

    1. Is it possible to use liquid securities as collateral to avail this loan?

    Some lenders in the market accept liquid securities as valid collateral. However, some lenders accept only real estate properties or inventory as collateral. You need to check with your lender to know if it is acceptable to use liquid securities.

    2. What is the time taken by lenders to disburse the loan amount?

    This varies among lenders in the market. Some lenders provide loans within just 24 hours. However, there are lenders who take a few days to process the loan application and disburse the amount.

    3. Can I get working capital loans without pledging collateral?

    Working capital loans are mostly offered only after pledging collateral. If you wish to opt for unsecured loans, you may take a personal loan and use it for your business needs. However, unsecured loans come with high interest rates based on your loan quantum, repayment terms, annual earnings, and credit score.

    4. Who can benefit the most from cash credit loans?

    Cash credit loans are ideal for individuals who have trouble meeting the operational expenses of the business. Businesses have to spend money on their everyday operations. Companies that have inadequate cash inflow can use a running account for working capital and benefit the most from it. It is also beneficial for seasonal businesses that have exponential sales only during certain months of a year.

    5. What are the fees and charges associated with cash credit loans?

    All major lenders charge a processing fee on the loan amount. If you miss a scheduled payment to the lender, you may have to pay penal charges. Other charges like commitment charges, stamp duty charges, stock audit charges, conversion charges, cheque bounce charges, etc., may vary from one lender to another.

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