Introduction
Running a business often means dealing with unpredictable cash flow. One month you’re flush with funds, the next you’re struggling to meet even day-to-day expenses. That’s where external financing avenues, such as cash credit loans, come into the picture. They help you manage short-term working capital requirements without disrupting daily operations or depleting long-term reserves. Excited to know more about the cc loan? Keep reading.
What is a cash credit loan?
A cash credit loan, also known as a cc loan, refers to a short-term working capital facility offered by banks and Non-Banking Financial Corporations (NBFCs) to businesses in India. Unlike a term loan, where a specific amount is disbursed and repaid over a pre-determined period, a cc loan allows you to withdraw funds multiple times up to a sanctioned loan limit. Interest is charged only on the amount utilized and not on the entire loan limit.
A cash credit loan is designed to help business owners tackle urgent cash requirements without taking a fresh loan every time. You can borrow funds from a cash credit loan limit and use it for a variety of purposes, including business expansion, staff payments, rent payments, inventory purchases, technology upgradation, and debt reduction. This limit is decided by the lender based on your business’s annual turnover, credit history, and financial stability. The initial validity of a cash credit loan limit is usually 12 months, after which it can be renewed for another 12 months, and so on.
Understanding the cash credit meaning and the advantages it offers over other business financing options, such as term loans and overdrafts (ODs), can help you make the right financial decision. For instance, a term loan allows you to borrow a fixed amount of money and repay it over a specified tenure, along with the applicable interest. Similarly, the OD facility allows individuals and businesses to use more funds than their account balance, up to a pre-approved limit.
How does a cash credit loan work?
Understanding how cash credit works is crucial for businesses that need recurring access to funds without repeated loan applications. Here’s a step-by-step breakdown of the cash credit loan process, from application to withdrawals to repayment to closure:
Application
You can start by applying for a cash credit loan with a bank or an NBFC offering this facility. Lenders like Tata Capital allow you to apply digitally from the comfort of your home or office. You can simply visit our website or download the mobile app, fill out an online application form, and upload the required documents.
Eligibility check
After receiving your application, the lender initiates a process to check your eligibility for a cash credit loan. It usually assesses your business’s financial statements, annual turnover, credit history, and collateral value (total inventory, receivables, fixed assets, etc.) to determine cc loan eligibility.
Sanction and limit determination
After carefully evaluating your business’s financial stability and collateral value, the lender sanctions a cash credit loan limit. This limit determines the maximum amount you can withdraw at a time.
Withdrawals
Now you are ready to withdraw funds from your cash credit account, as and when needed. This flexibility makes the facility ideal for managing fluctuating business cash flows. However, the maximum amount you can withdraw depends on the sanctioned loan limit. For example, if you have a sanctioned cc loan limit of Rs. 30 lakhs and you’ve already withdrawn Rs. 20 lakhs from it, you won’t be able to withdraw more than Rs. 10 lakhs now.
Interest calculation and repayment
You can repay the loan amount at any time during the loan tenure by depositing money into your cc account. The interest will be charged only on the amount you’ve utilized.
Renewal or closure
A cc loan limit usually has an initial validity of one year, after which you can choose between renewal or closure.
Also,read – What is a Business Line of Credit & How Does it Work?
Key features of a cash credit loan
A cash credit loan is a powerful financing tool that allows you to manage your short-term working capital requirements efficiently. Its structure, flexibility, and cost-effectiveness make it a preferred option for Indian business owners with fluctuating cash flows. Let’s have a look at the key cash credit loan features that distinguish it from other business financing instruments:
Flexible credit limit
In a cc loan, the lender sanctions a flexible credit limit based on your business turnover, creditworthiness, and collateral value, among several other factors. You can withdraw funds from this limit multiple times during your cc loan tenure. Such a facility helps you tackle evolving financial requirements easily.
Interest is charged only on the utilized amount
Another standout feature of a cash credit loan is that the interest is charged only on the amount you utilize or withdraw, and not on the entire loan limit. For example, if you have a sanctioned loan limit of Rs. 30 lakhs and have utilized Rs. 10 lakhs till now, the interest will be calculated on Rs. 10 lakhs only.
Collateral/security requirement
A cash credit loan is typically secured by business assets such as stock, raw materials, finished goods, or receivables. The collateral assures the lender of repayment and helps the borrower access a higher credit limit at competitive interest rates.
Short-term tenure and renewals
A cash credit loan generally comes with a short tenure of up to 12 months. It is ideal for meeting short-term liquidity requirements. However, once the initial tenure of 12 months is over, you can choose to renew your cash credit loan limit by paying a nominal renewal fee. If unsatisfied, you can even choose to close your cc loan account.
Multiple withdrawals and repayments
A cash credit loan account allows multiple withdrawals and repayments during the loan tenure. It means that you can withdraw and repay as many times as you want, subject to the sanctioned loan limit. This feature helps you manage cash flow cycles, fund inventory purchases, or handle delayed customer payments without disruption.
Tax benefits on interest paid
Another feature of a cash credit loan is that the interest paid on the borrowed amount is treated as a business expense. It means that it can be claimed as a tax deduction under Section 37 of the Income Tax Act of 1961. This helps in reducing the overall cost of borrowing and enhances profitability for businesses.
Also,read – 5 Things You Should Include in Your Business Loan Application
Benefits of cash credit loans for businesses
A cash credit loan offers immense flexibility and liquidity for businesses. Whether it’s for paying suppliers, meeting payroll, or handling seasonal demand, a cc loan allows you to withdraw funds as and when you need. Here are the key advantages of cash credit loans for businesses:
Improved working capital management
A cash credit loan allows you to access funds instantly whenever working capital needs arise. It ensures smooth day-to-day operations by bridging the gap between payables and receivables. You can withdraw money as many times as required from the sanctioned loan limit.
Boosts liquidity during off-seasons
Businesses often face uneven cash flows due to seasonal fluctuations and/or delayed payments. A cc loan limit acts as a financial cushion and provides immediate liquidity to help you sail through the choppy waters. Continuous access to funds helps you maintain a steady performance even during low-revenue periods.
Flexibility in withdrawals and repayments
One of the major cash credit loan benefits is the flexibility it offers in withdrawals and repayments. It acts like a revolving credit line from which you can withdraw funds, repay them, and then again withdraw, as per your developing financial requirements. This flexibility ensures you won’t have to apply for a new loan every time you go through a cash crunch.
Supports business growth
By providing easy access to working capital, cash credit loans empower businesses to seize growth opportunities. For example, you can take bulk orders from your customers without worrying about the cash flow shortage. You can even scale your production without any financial stress.
Seamless business operations
With uninterrupted access to funds, cash credit loans allow you to manage your day-to-day business operations without any hindrance. It ensures that you stay focused on growing your business rather than worrying about the cash in hand.
Eligibility criteria to avail a cash credit loan
It’s crucial to check your cash credit loan eligibility before applying for it. Getting your loan application rejected by a lender can not only harm your credit score but also damage your business’s reputation. Although the exact eligibility criteria vary from one lending institution to another, here are some common parameters that they check:
- Business type and registration
Lenders offer cash credit loans to businesses registered as sole proprietorships, partnership firms, private limited companies, LLPs (Limited Liability Partnerships), or MSMEs (Micro, Small and Medium Enterprises). Additionally, the business must be registered in India.
Lenders also check on the business’s vintage, i.e., the age of the business, before approving cash credit loan applications. Usually, they require a minimum business vintage of two to three years; however, this criterion may vary from lender to lender.
A few lenders may also require a minimum annual turnover for providing cash credit loans. A higher turnover can help you get approval for an enhanced loan limit.
The borrower’s CIBIL score, ranging between 300 and 900, reflects their creditworthiness. Lenders usually ask for a CIBIL score of 700 or more to approve your eligibility for a cc loan. A higher CIBIL score can also help you secure a lower interest rate and an improved loan limit.
The borrower’s age can also determine who can apply for a cash credit loan. Usually, this facility is offered to entrepreneurs aged between 24 and 80 years. However, this range is decided by the lender and is not fixed for all.
Also,read – Increasing Credit Gap for MSMEs & how it can be addressed
Documents required for a cash credit loan
Merely fulfilling the eligibility criteria mentioned above isn’t enough. You must submit the essential cc loan documents to get your loan limit approved. Incorrect or incomplete documentation may lead to the rejection of your loan application.
Below is the list of the documents required for a cash credit loan:
- Identity proof – A government-approved identity proof is required. It may include your PAN card, Aadhaar card, Voter’s ID card, Passport, etc.
- Address proof – A valid proof of your current address. It can be your Aadhaar card, Passport, rental agreement, property ownership papers, or utility bills.
- Business registration proof – A business registration proof can be your UDYAM certificate, GST registration certificate, or a certificate of incorporation.
- Financial statements – These may include your latest Income Tax Returns (ITRs), audited balance sheet, profit-loss statements, etc.
- Bank statements – Last six-month bank statements may be required to evaluate cash flow and repayment capacity.
- GST returns – Latest GST filings are required to validate your business’s turnover and sales records.
- Collateral documents – If you are applying for a cc loan against an asset, such as a real estate property or a fixed deposit, you must submit collateral documents. These may include property papers, asset valuation reports, etc.
Apart from the documents mentioned here, you may also need certain additional documents at the time of loan processing. It’s best to get in touch with your lender for more accurate details.
Cash credit loan interest rates and charges
The applicable cash credit loan interest rate plays a crucial role in determining your overall cost of borrowing. In India, these rates vary across lenders and depend on several key factors such as the applicant’s credit score, business profile, financial stability, and loan tenure. The borrower’s relationship with the lender may also play a part.
Businesses with a strong credit history, consistent cash flow, and a good repayment track record often qualify for lower cc loan interest rates in India. On the other hand, start-ups or businesses with fluctuating revenues may be charged slightly higher rates to balance lending risk.
Apart from the interest rate, lenders may also levy the following charges on cc loans:
- Processing fee: A one-time fee charged for covering the administrative costs incurred by the lender. It’s usually 1% to 3% of the sanctioned loan limit.
- Renewal fee: This is an annual fee for extending or reviewing the cash credit limit. It is usually charged as a flat fee by lenders.
- Documentation or legal fees: It covers the costs of verifying and registering collateral documents.
- Foreclosure charges: Charged as a percentage of the outstanding loan amount for foreclosing the loan account before the end of its tenure.
At Tata Capital, we offer cash credit loans at highly competitive interest rates. You can even avail of the exclusive pre-approved offer to get the best rate.
Also,read – How Does a Short-Term Line of Credit Work?
Common uses of a cash credit loan in business
A cash credit loan is one of the most versatile financing tools for businesses. It provides instant access to working capital and helps manage day-to-day operations smoothly, without interrupting business continuity. The benefits of cc loans for businesses range from improved liquidity to flexibility in withdrawals and repayments to hassle-free expansion.
Here are some practical cash credit loan uses in daily business operations:
Purchasing raw materials
Manufacturing businesses can use cash credit loans to buy raw materials in bulk. They ensure uninterrupted production even when receivables are delayed.
Paying rent and salaries
Even basic expenses, such as paying rent and salaries, seem difficult when there is a cash flow shortage. With a cash credit loan, you can manage these expenses without any hassles.
Maintaining inventory
If you are a retailer or a wholesaler, you can borrow from your cc loan limit to buy advance inventory during high-demand seasons. It helps you bridge the gap between receivables and payables.
Meeting short-term financial requirements
You can use cc loans to pay suppliers, clear invoices, and handle other short-term business expenses without waiting for customer payments.
Marketing and promotions
You can use funds from your cash credit loan to finance marketing campaigns, trade fairs, or product launch events.
Business expansion
A cash credit loan facility can also help you pay for your business expansion. You can use it to invest in new projects, upgrade your business infrastructure, procure new equipment, and do much more.
Also,read – Top Reasons to Avail an SME Loan from NBFC
Things to consider while applying for a cash credit loan
A cash credit facility is highly beneficial for managing working capital, but borrowing without proper planning can lead to unnecessary financial strain. Here are some important things to consider before applying for a cash credit loan:
- Assess your working capital needs: Estimate how much short-term funding your business actually requires. Borrowing an unnecessarily high limit can increase interest costs.
- Maintain a good credit history: Lenders check your credit score and repayment history before approval. A high CIBIL score improves your cash credit loan eligibility and helps secure better interest rates.
- Provide adequate collateral: You can consider providing adequate collateral for your cash credit loan. Doing so enhances your chances of loan approval and also helps you secure a higher loan limit.
- Understand the associated charges: Read the fine print carefully to understand all applicable charges along with the interest rate. Compare between lenders before finalizing.
- Review repayment flexibility: Check the repayment terms and renewal policies to ensure they align with your business cash flow cycle.
How to apply for a cash credit loan?
You can apply for a cash credit loan through a straightforward process if you meet the eligibility criteria of the lender. Below are the steps involved in the cash credit loan application process:
Research your options
Several banks and NBFCs provide cash credit loans in India. Research and compare your options based on the interest rate offered, collateral requirements, annual renewal charge, repayment terms, and other factors to choose the most suitable lender.
Check eligibility criteria
Once you have zeroed in on a lender, go through its eligibility criteria carefully. Ensure your business meets basic requirements such as valid registration in India, minimum business vintage, stable annual turnover, and a satisfactory CIBIL score. Also, check the collateral requirements.
Gather required documents
Keep all necessary documents ready, including identity proof, business registration certificates, financial statements, bank statements, GST returns, and collateral documents.
Submit your application
Submit your cc loan application to the lender online or offline. For an online application, you can visit your lender’s official website or download the mobile app. For an offline application, you can go to the lender’s nearest branch office.
Wait for the verification process
Upon receiving your application, the lender will evaluate your credit profile, financial health, and collateral value. This stage determines your sanctioned limit and applicable interest rate.
Approval and disbursement
Upon successful verification, the lender approves your loan application and sanctions a cc loan limit. Accept the terms and conditions of the loan agreement and start borrowing from the sanctioned limit.
FAQs
The full form of cc loan is a cash credit loan. It is a short-term working capital facility offered by banks and NBFCs that allows businesses to borrow funds up to a pre-approved limit. Interest is charged only on the amount utilized or borrowed.
In a cash credit loan, the interest is charged only on the amount utilized or borrowed, not on the sanctioned loan limit. It’s usually computed on a daily reducing balance basis.
Yes. A start-up can apply for a cash credit loan, provided it meets the lender’s eligibility criteria, such as valid business registration, minimum operational history, and sufficient financial records. However, a few lenders ask for additional collateral or a guarantor to provide cc loans to start-ups.
A cash credit loan offers flexibility in terms of withdrawals and repayments. It means that you can withdraw and repay at any time during the loan tenure. However, if you still fail to repay the loan amount, the lender may impose penalty interest or late payment charges. In severe cases, the lender may seize pledged collateral or take legal recovery actions.
Yes. A cash credit loan offers tax deduction benefits. Under Section 37 of the Income Tax Act of 1961, interest paid towards a cash credit loan is considered a business expense and can be claimed as a tax-deductible.
No. A cash credit loan is specifically designed to help businesses meet short-term working capital requirements. Using it for personal or non-business purposes violates loan terms and can lead to penalties or cancellation.
12 December 2025
15 mins read
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