When you own a business, you must always be on the lookout for strategies to satisfy your financial requirements. Capital is an essential component of any business operation, and a lack of it can hinder your company’s growth. You might seek external financial aid to ensure that you have enough finances to run your firm smoothly. Cash credit is a popular type of financial aid.
What exactly is meant by cash credit?
Cash credit is a short-term funding or loan for a business to cover its working capital requirements. Cash credit is a type of loan provided to businesses by financial institutions such as banks. Banks lend cash to businesses depending on their credit history and financial viability. If you obtain funds through cash credit, you can utilize them for a variety of business goals such as expansion, purchasing plant and machinery, raw materials, hiring personnel, debt consolidation, and so on.
To obtain cash credit, there is need to hypothecate stocks, receivables and so on. You can repay the loan amount over a period of up to 12 months, which can be extended. As a business, you can only borrow up to the lender’s sanctioned limit. To obtain Cash Credit, there is a need to additionally provide collateral or security. Once you obtain the funds, you will be able to manage financial shortages in your business activities immediately.
What are the characteristics of cash credit?
- It is a short-term loan with a maximum repayment period of 12 months.
- The interest rate is only applied to the amount withdrawn, not to the overall sanctioned limit.
- You may withdraw funds as many times as necessary within the permitted limit.
- It is only available if collateral or security is provided.
- If your company has a stronger credit score and payback history, you will be able to obtain a bigger cash credit limit.
- The lender can recall the sanctioned amount on short notice. The interest you pay on Cash Credit is tax-deductible.
How can cash credit benefit companies?
Buying raw materials: You need enough raw materials to run your operation properly. You have the liquidity to quickly buy raw materials thanks to cash credit.
Maintaining inventory: Your business depends on your inventory, too. By using cash credit, you can make sure you have the money to keep your inventory well stocked so you can serve your customers.
Paying salaries and rent: As a business owner, you must account for expenses like the wages of your employees and overhead charges like rent. You can utilize cash credit for any purpose and use it to pay for these important company expenses.
Sales financing: You can only get customers for your products and services if you have a plan in place. The money made available through cash credit can be used to support a marketing and sales team that will help spread the word about your company.
Conclusion
Cash Credit is an important financial solution that enables firms to effectively handle their short-term financial needs. Its flexibility, easy availability, and interest-only on utilized amounts make it an appealing option for many businesses. However, it must be used properly and intelligently to contribute to the overall financial health and growth of the company. Businesses should carefully examine their requirements, compare offers from numerous lenders, and maintain openness in their financial dealings before deciding on Cash Credit to develop a strong and reliable financial basis for their organization.
We can provide you professional advice for getting the cash credit for your unique requirement.
Written by:
Kaushik Shah
Founder at BluCrest Capital Advisors Pvt Ltd
Kaushik Shah
Founder at BluCrest Capital Advisors Pvt Ltd