You always have to be on the lookout for ways to meet your capital requirements when you own a business. Capital is an integral element of any business operation, and the lack of it can limit your enterprise's growth. To ensure that you have sufficient funds to run your business seamlessly, you can rely on external financial assistance. One such popular form of financial aid is cash credit. Continue reading to learn more about cash credit's meaning and uses for business.
What is meant by Cash credit?
Cash credit is referred to as short-term funding or loan for a company so that it can meet its working capital requirements. Cash credit is a sort of loan that is offered to businesses by financial institutions like banks. Banks offer cash credit to businesses based on the latter's credit history and financial stability. If you procure funds via cash credit, you can use it for various business-related purposes like expansion, purchasing plant and machinery, raw materials, hiring staff, debt consolidation, etc.
If you want to avail of a Working Capital Loan like cash credit, you have to hypothecate your stocks and receivables. You can repay the loan amount in a tenure of up to 12 months that can be renewed. As a business, you can only borrow up to the sanctioned limit from the lender. You also need to submit collateral or security to avail of Cash Credit. Once you avail of the funds, it can instantly help you manage any cash crunch in your business activities.
Also read: How to apply for a Working Capital Loan if you are an SME
What are the features of cash credit?
The features of cash credit are as follows:
It is a short-term loan with a repayment period of up to 12 months.
The interest rate is charged only on the amount withdrawn and not on the total sanctioned limit.
You can withdraw money as many times as required from within the sanctioned limit.
It is only offered if you provide collateral or security.
If your business has a higher credit score and repayment history, you will be able to avail a higher limit via cash credit.
Banks and financial institutions consider your business' turnover and volume while deciding the limit sanctioned.
You can repay the amount borrowed via cash credit either monthly, quarterly, or half-yearly.
If you are an individual borrower, you can avail of cash credit against your Fixed Deposit.
The lender can recall the sanctioned amount on short notice.
The interest you pay on Cash Credit is tax-deductible.
How does cash credit help businesses?
Cash credit can help your business with the following:
Purchasing raw materials: As a business owner, your operation cannot go on smoothly if you do not have adequate raw materials. With cash credit, you have the liquidity to purchase raw materials in a timely manner.
Maintaining inventory: Similarly, your inventory is integral to your business. When you avail of cash credit, you ensure that you have the funds to keep your inventory fully stocked to service your clientele.
Paying salaries and rent: As an entrepreneur, you have to factor in costs like your staff's salary and overheads like rent. Cash credit can be used for any purpose and can help you meet such essential business expenses.
Financing sales: Your goods and services will only sell if you have a strategy in place. You can use the funds availed via cash credit to finance a marketing and sales team that can ensure that word about your business gets around.
Now that you know more about what cash credit means, you can rely on it to help you out of a tight financial spot.
HDFC Bank recognises the challenges entrepreneurs face while acquiring capital. Thus, HDFC Bank has created MyBusiness, a one-stop solution that gives you easy access to loans, digital solutions and provides you with the essential knowledge you need to run your business. With HDFC Bank MyBusiness, you can scale up, expand your operations, and nurture your business.
To learn more about the various products and services at HDFC Bank that can benefit your enterprise, you can check out the MyBusiness page here.
Is cash credit or overdraft better for your business? Click here to read more!
*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.