Cash Credit / Overdraft Facility
Cash credit is a short-term business loan. It is meant for entrepreneurs wanting to get quick working capital. An overdraft facility, on the other hand, is a long-term financial assistance. It lets you withdraw money from your account even with zero balance.
Both are generally referred as credit facilities banks or lenders offer borrowers. Your lender uses the hypothecation of the company’s inventories for the purpose. Certain financial institutions even consider bank statements.
Cash credit and overdraft facilities may appear similar at a glance. However, the two are entirely different financial products.
Here are some of the factors that set the two apart:
To help you buy raw materials, take care of receivables and maintain stocks
To keep your business operational
To Purchase Raw Material “
To fulfill non-business requirements
Calculating rate of interest
Based on the entire amount you withdraw
Based on the amount used
General rate of interest
Need to open a separate account
You can use your current account to avail the facility
Up to 60% of the value of your inventories and receipts
The lender decides based on your account and your relationship with the institution
Limit of withdrawal
Can be changed based on the value or quantity of your inventories
Cannot be changed. Your current balance may influence your current account