A Cash Credit (CC) facility stands as a viable financing alternative for businesses and companies. In essence, Cash Credit in Bangalore represents a short-term loan extended by a bank to a firm. Kare Financial Services offers cash credit solutions that empower businesses to access funds from a designated bank account without the necessity of maintaining a credit balance. With this account, borrowers can utilize funds up to their specified borrowing limit, with interest charged on the amount borrowed rather than the entire borrowing cap. For those seeking further knowledge on this subject, CFI's Credit Analyst Certification program serves as an excellent resource.
Main Characteristics of Cash Credit
- Maximum Loan Amount: The borrowing cap under a cash credit facility is determined by the borrower's creditworthiness, allowing a business to withdraw funds up to the amount it has borrowed.
- Interest on Balance: Unlike traditional debt financing methods like loans, interest is charged on the operating balance of the cash credit account rather than the total borrowing limit.
- Minimum Commitment Fee: A short-term loan through cash credit entails a minimum fee for establishing the loan account, irrespective of whether the borrower utilizes the available credit.
- Collateral Security: Collateral such as stocks, fixed assets, and real estate is often pledged to secure credit.
- Credit Term: Cash credit is typically provided for a period of 12 months, after which the drawing power is reassessed.
Benefits of Cash Credit
- Working Capital Funding Source : Cash credit serves as an effective source of working capital funding, alleviating concerns about liquidity.
- Easy Setup : With collateral security available and easily assessable realizable value, banks can swiftly arrange cash credit.
- Flexibility : Withdrawals from a cash credit account can be made up to the borrowing cap, and deposits of surplus cash reduce interest obligations.
- Tax Advantages : Interest payments on cash credit are tax-deductible, reducing the overall tax burden for businesses.
- Lower Borrowing Costs : Since interest on a cash loan is based on the amount utilized or the minimum commitment fee, borrowing costs are minimized for the borrower.
Important Features/Rules of Cash Credit Facility
Borrowing Limit depending on Drawing Power
In a cash credit facility, the borrowing limit is determined by the bank and is based on the borrower's ability to repay. Interest is calculated on the daily closing balance of the cash credit current account, encouraging prompt debt collection and deposits.
The Process of Cash Credit
Cash credit is typically extended to business customers who pledge collateral such as stock or real estate. The credit cap is often a percentage of the value of the secured collateral. Interest is charged on the regular closing balance, making it a convenient short-term lending option for businesses.
Cash Credit in Bangalore
Banks in Bangalore commonly offer CC services, serving as a crucial short-term funding option for businesses. Kare Financial Services assists businesses in accessing the best interest rates available, leveraging its affiliation with 45+ banks in Bangalore.