Cash Credit Limit
A cash credit is an important type of working capital financing. The Limit is utilized for working capital requirements of the business. Assessment of Cash credit Limit is done taking into consideration the business cycle viz the stock level, credit period from creditors and credit period provided to customers.
In contrast with other traditional debt financing methods, the interest charged is only on the utilized amount of the cash credit account and not on the total borrowing limit. The drawing power is determined, based on the stock and book debts statements submitted by the borrower at monthly intervals Primary security for Cash credit is stocks and book debts.
Collateral Security may be any immovable properties or FDRs. Cash credit is typically given for a maximum period of 12 months, after which the drawing power is re- evaluated.