How to get CC Limit or Cash Credit Limit in Delhi NCR ?

CC Limit or Cash Credit Limit is a type of short-term working capital loan that is given by Banks and Financial Institutions. It allows borrowers to use funds to a predetermined limit without credit balances in an account according to prior agreements. It helps small and medium enterprises (SMEs) to meet their working capital requirements.

What is CC Limit or Cash Credit Facility ?

CC Limit or Cash credit Facility is a short-term source of financing for a business or company that enables the business or company to withdraw money from a bank account without maintaining a credit balance. This account is limited to borrowing to the maximum extent of borrowing. Also, interest is levied on the amount borrowed and not on the borrowing limit.

A Cash Credit Loan can be used to meet the Working Capital gap in situations such as the following :-

1. Purchasing Raw Materials,
2. Maintaining Inventory,
3. Paying Salaries or Rent,
4. Storage and Warehousing,
5. Financing Sales, etc.

Key Features of CC Limit or Cash Credit Limit

1. CC Limit or Cash Credit Limit available against collateral like Stocks, Fixed Asset or Property
2. CC Limit or Cash Credit Limit available from Rs. 2 lakhs to Rs. 100 cr.
3. CC Limit or Cash Credit Limit is typically given for a maximum period of 12 months, after which the drawing power is re-evaluated.
4. Interest rate and processing fee will be depending based on the schemes selected by the borrower.
5. Minimum Commitment Charge :- The short-term loan comes with a minimum charge for establishing the loan account regardless of whether the borrower utilizes the available credit. For example, banks typically include a clause that requires the borrower to pay a minimum amount of interest on a predetermined amount or the amount withdrawn, whichever is higher.
6. Interest on Running Balance :- In contrast with other traditional debt financing methods such as loans, the interest charged is only on the running balance of the cash credit account and not on the total borrowing limit.
7. Borrowing limit :- A cash credit comes with a borrowing limit determined by the creditworthiness of the borrower. A company can withdraw funds up to its established borrowing limit.

Advantages of CC Limit or Cash Credit Limit

1. Flexibility :- 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.
2. Source of Working Capital Financing :- A cash credit is an important source of working capital financing, as the company need not worry about liquidity issues.
3. Easy arrangement :- It can be easily arranged by a bank, provided that collateral security is available to be pledged and the realizable value of such is easily determined.
4. Tax-deductible :- Interest payments made are tax-deductible and, thus, reduce the overall tax burden on the company.
5. Interest charged :- A cash credit reduces the financing cost of the borrower, as the interest charged is only on the utilized amount or minimum commitment charge.

Disadvantages of CC Limit or Cash Credit Limit

1. High Rate of Interest :- The Interest Rate charged by a loan on cash credit is very high as compared to traditional loans.
2. Minimum Usage Condition – Some Bank levies charges if the CC Account is not utilized up to a certain limit. For example you take an CC account of Rs. 10 lakhs and average use during the year is not 30% i.e Rs.  3 lakh then charges are levied.
3. Difficulty in Securing :- The short-term loan is extended to the borrower depending on the borrower’s turnover, accounts receivable balance, expected performance, and collateral security offered. Therefore, it can be difficult for new companies to obtain.
4. Temporary Source of Finance :- The loan is a short-term source of financing. A company cannot rely on it for an extended period of time. After the expiration of the loan, it must be renewed under new terms and conditions.
5. Processing Fees – Processing fees charged by bank is normally .25% to 1.50% and could bargain on it.
6. Account Closing Charges – Some Banks also levies a percentage of loan amount as charges called foreclosure charges if you want to close the account. This generally ranges from 1% to 2%. If your bank levies 2% foreclosure charges then its not beneficial for you to shift to other Bank even if other Bank gives you a better interest rate.
7. Interest Servicing – Some Banks required the customers to deposit the interest of the month in the account through cash or cheque deposit within a few days of the next month.

CC Limit or Cash Credit Limit Eligibility Criteria

1. Sole Proprietorship Firms, Partnership Firms, Private limited Companies, Public limited Companies can apply.
2. Manufacturers, Traders, Wholesalers, Retailers, online sellers can apply.
3. Minimum 3 Years old business vintage required.
4. Latest 1 Year audited turnover required.
5. Individual’s age limit should be between 21 years to 65 years.

Required Documents for CC Limit or Cash Credit Facility