What Is a Cash Credit Loan and How Does It Work?
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Home » What Is a Cash Credit Loan and How Does It Work?

What Is a Cash Credit Loan and How Does It Work?

A cash credit loan is a cash loan given to a company to meet its working capital requirements. It is a short-term source of finance with a tenure of up to 12 months.

A cash credit loan allows a company to withdraw money from a bank account. You can withdraw as many times, but up to its withdrawal limit.

The borrowing limit is decided on the basis of the applicant’s credit history or creditworthiness, which is based on the company’s structure of the current assets and liability. Additionally, the interest is only charged on the amount borrowed and not on the entire borrowing limit.

Cash credit loan is offered to companies to bridge the working capital gap.

The cash credit can be used for the following:

  • Buying raw materials, stores, fuel, etc.
  • Paying labour wages, power charges, for storing goods until sold
  • Financing the sales

Cash credit loan is granted against security.

The cash credit loan is granted only when it is hypothecated against stock and assets of the company. The security can be in the form of the following:

  •    Raw materials
  •    Work-in-process
  •    Finished goods
  •    Stock-in-trade (including stores and spares)

Important Features of Cash Credit Loans

Borrowing Limit Depends on applicant’s borrowing power or creditworthiness
– Can withdraw as many times up to the borrowing limit
Interest – Interest is charged only on the amount withdrawn and not on the entire borrowing limit
Minimum commitment charge – The minimum charge needs to be paid regardless of whether the loan amount is used or not
Collateral security – Secured against assets and stocks
Credit tenure – Up to 12 months


Advantages and Disadvantages of Cash Credit Loans



A cash credit loan provides an excellent form of finance without the company worrying about liquidating their assets. Since it is a short-term (temporary) loan, a company cannot rely on it for an extended period of time. After the cash credit loan expires, it can be renewed, but the terms and conditions are re-evaluated.
The bank can easily arrange for a cash credit loan as long as the loan value is determined, and collateral security is pledged. New companies can have difficulty obtaining this loan as the approval depends on the proven track record of profit and collateral security offered.
You are given the flexibility to:

  • Withdraw as many times from your available cash credit loan up to its withdrawal limit.
  • Deposit whenever you have excess funds to lessen the burden of interest.  
You have to pay the minimum commitment charge regardless of whether the company utilizes the cash credit or not.
  • Interest paid on your credit cash loan is tax-deductible.
  • You pay interest only on the amount you borrow.
The interest rate applied to cash credit loan is very high.


If your requirement is a small business loan of up to ₹ 5 Lakh, MoneyTap can help. It offers personal loans to help you meet your day to day business requirements. With MoneyTap’s personal loan for businessman, you have the following benefits:

  • Instant approval of a personal loan for up to ₹ 5 Lakh
  • Low-interest rate
  • Pay interest only on the amount used

Download the app now!


Shiv Nanda

Shiv Nanda

Shiv Nanda is a financial analyst at MoneyTap who loves to write on various financial topics online. He also advises people on financial planning, investment choices and budgeting skills, and helps them make their financial lives better.


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  • I need Loan amount Rs 50,0000/- with low Monthly EMI system like EMI Rs 1500/- OR Rs 2000/- with long term duration so is it possible then only will apply otherwise no Need, thank u sir

    • Hi, Thank you for showing interest in MoneyTap.

      MoneyTap is a Credit Line (combination of personal loan & credit card) app, which is available on Google Play Store. You can download the app and finish the application process on your phone in just 4 minutes.

      Please be ready with your PAN number, ID proof, and address proof. While applying, you will be requested to take a selfie (to be pasted on the application form) and pictures of your ID proof and address proof. Please ensure to take the pictures as per the guidelines mentioned.

      Once you are done with e-KYC, you will get a simple verification call from us, and we will fix an appointment at your convenient time to get your signature on the application form. The entire process to get a credit line set up takes about 2-3 working days.

      Here is the best part about MoneyTap – UNLIKE ANY OTHER LOAN PRODUCT IN THE MARKET, the interest will only be charged on the amount used, not on the whole approved amount.

      Example: if you get approved for 50k, and you transfer only 15k then the interest will only be charged on 15k, which can be converted into flexible EMIs. Each time you pay back, your limit will be topped up again by the same amount (minus the interest).

      Please use this link to download: http://m.onelink.me/f8483b7b

      We look forward to welcoming you to the MoneyTap family.