A Cash Credit (CC) is a short-term source of financing for an organization. In simple words, a cash credit is a short-term loan given to an organization by a bank. It empowers an organization to withdraw cash from a bank account without keeping a credit balance. The account is restricted to just borrowing up to their borrowing limit. Additionally, the interest is charged on the sum borrowed and not the borrowing limit.
- A cash credit comes with a borrowing limit determined by the credit value of the borrower.
Cash credit is frequently secured utilizing stocks, fixed assets, or property as collateral.
Conversely with other traditional debt financing techniques, for example, loans, the interest charged is only on the running balance of the cash credit account and not on the total borrowing limit.
Cash credit is normally given for a maximum period of a year, after which the drawing power is re-evaluated.
The short-term loan accompanies a minimum charge for setting up the loan account regardless of whether the borrower uses the available credit.