CASH CREDIT FACILITY

A Cash Credit (CC) is a short-term source of financing for a company. In other words, a cash credit is a short-term loan extended to a company by a bank. It enables a company to withdraw money from a bank account without keeping a credit balance. The account is limited to only borrowing up to the borrowing limit.

A cash credit is an important source of working capital financing, as the company need not worry about liquidity issues.

Withdrawals on a cash credit account can be made many times, up to the borrowing limit, and deposits of excess cash into the account lowers the burden of interest that a company faces.

A cash credit reduces the financing cost of the borrower, as the interest charged is only on the utilized amount. The amount is calculated daily and billed at the month-end.

The credit is often secured using stocks, fixed assets, or property as collateral.

Cash credit is typically given for a maximum period of 12 months, after which the drawing power is re-evaluated.