How does cash credit facility work? Does it need collateral?
Yes for a cash credit facility as a business owner you can pledge your assets like stocks, raw materials, any inventory etc and raise cash credit limits for your business operations. Cash credit limit is decided by the bank depending on your security and overall quantum of business.
Cash credit facility comes in handy for anyone who requires finance in the short term. Cash credit loans are usually obtained for a duration of one year. The amount varies from person to person, depending on the credibility of the person in the past as well as the structure of assets/liabilities of the business. To obtain this kind of loan you need to pledge a collateral security with the bank.
A cash credit loan is a short-term source of finance, having a tenure of up to one year. Under the short-term finance option, the bank offers its applicant to take a loan up to a certain limit depending on their credit history.
This type of loan is extended to businesses and companies to fulfill their working capital requirement. This allows the customer, typically a business or company with a proven track record of profit, to withdraw money which is more than the balance available in their accounts. Cash credit is also known as Bank Overdraft facility.