Cash Credit Limit

When you require working capital limit for your business, you have two options either to opt for overdraft facility or OD limit from bank or NBFC or to opt for CC limit from bank. Overdraft facility or OD limit can be provided by bank or NBFC but CC limit facility or cash credit limit provided by bank only. Primary security mortgaged by the bank or NBFC for overdraft facility is assets of the borrower but in CC limit primary security is stock and debtors of the company.

Cash credit limit or CC limit is a kind of current account with cheque book facility. Cash credit limit or CC limit sanctioned by the bank to the small medium enterprises (SME) to fulfill their working capital requirements. CC limit holders offers stock and debtors as primary security to the bank. A CC limit or cash credit limit allows you to withdraw money or issue cheque up to the approved CC limit, even if there is no balance in the account. It is a short term credit facility generally for 12 month, which is renewable after every 12 months.
The cash credit limit loan or CC limit is the maximum amount that you can overdraw from bank. However the drawing limit is specified by the bank. Borrower has to pay interest on utilized amount only, not on limit sanction. Interest is calculated on daily overdrawn balance and debited to the cash credit or CC account monthly.
Whatever amount you repay into the cash credit or CC account, you can withdraw it again as long as the limit is not over utilized. That’s why Cash credit limit or CC limit facility is also called revolving credit facility.

CC Limit Fulfills Working Capital Requirement Of The Business : Cash credit limit loan fulfills working capital requirement of the company. As a businessman you may buy goods on credit from supplier and supplier may offer credit period for payment but it is not feasible always to sale all the goods in given time. There may be some unsold stock and your money blocks in the stock.
Not only this but also, you may have to sale your goods on credit to your buyer and expecting timely payment from your debtors. But due to various reason and circumstances you may or might be not getting payment on time, due to all this you may face liquidity problem.
Due to liquidity problem, you may be not able to make payment of regular and fixed, business expenses on time like employee salary, commission, payment to your creditors etc. Supplier may stop supplying goods and worker may go on strike. This will not only affect your business but also cause a great loss to the company. This will also affect goodwill and reputation of the company.
To come out of this situation you can avail cash credit or CC limit from bank, so that you may not face working capital problem. Timely payment of your creditors and other business expenses gives you great mental satisfaction and helps you to run your business smoothly. This will also increase goodwill and reputation of the company.

CC Limit Used To Meet Unexpected Business Expenses : Business is full of uncertainty. As a businessman you have to make certain expenses for which you have not made any kind of provision. Expenses such as road accident, death of an employee, government policies, hike in rates, taxes and fees, strike etc. require a lot of money.
If you have Cash credit limit loan or CC limit from bank, it will help you to meet all these unexpected business expenses on time and your business runs smoothly.

CC Limit A Great Tool For Seasonal Business : When a businessman manufacture or deals in a product which is seasonal like candle or light business, warm clothes business, etc. There is very less demand in off seasons. As there is no sale or very less sale, businessman may faces cash liquidity problem. Due to liquidity problem, you may be not able to pay your regular business expenses such as employee salary, payment to your suppliers etc. Supplier may stop supplying goods and worker may go on strike.
Cash credit limit or CC limit facility is a great tool to overcome with this problem because CC limit provides by the bank taking stock and debtors as primary security.

Cash credit or CC limit is an agreement between borrower and the lender that regulates the term of cash credit or CC limit. All the bank have their own loan eligibility criteria but there are some common loan eligibility criteria which borrower has to fulfill to avail cash credit or CC limit from bank.

Following are some key important factors which would be checked by bank to accept or reject the cash credit or CC limit application:

  • Age : At the time of cash credit or CC limit application, applicant must be 23 years or above but not more than 58 years.
  • Business Continuity :Bank checks business continuity of borrower who is applying for cash credit or CC limit. A borrower should be in the business for the last three years to avail cash credit or CC limit.
  • Nature Of The Business : Cash credit or CC limit offered by bank to trader and manufacturer only. It is because primary security for cash credit or CC limit is unsold stock and book debts or debtors.
  • Cibil Score :A cash credit or CC limit borrower, who is having good cibil score will get quick loan from the bank. Cibil score is a decisioning factor for sanctioning or rejecting cash credit or CC limit application.
  • Valid, Clear And Marketable Title Deeds Of Property :Generally bank needs additional security from the borrower. So, cash credit or CC limit borrower must be having valid, clear and marketable title deeds of entire chain of the property along with approved sanction plan or map. The ownership and physical possession of the property lies with the borrower only.

WHAT ARE THE DOCUMENTS REQUIRED FOR CASH CREDIT OR CC LIMIT?

Documents required for cash credit or CC limit depends upon the type of business of the borrower.
Documents required for different types of business are as follows:

Documents Required For Self Employed Non-Professional:Lenders further divided self employed non-professional into three categories i.e. Proprietorship Firm, Partnership Firm, and Private Limited or Limited company. As per the types of company document required for cash credit or CC limit are as follows:


KYC Documents

  • Pan Card
  • Aadhar Card
  • Voter ID Card
  • Passport
  • Latest Month Electricity Bills
  • Copy of VAT/ Sales Tax, GST, Import-Export or any other registration Certificate
  • Latest Office Address proof i.e. electrcity bill, rent agreemen etc.
  • Company Profile on the Letterhead of the firm

INCOME DOCUMENTS

  • Latest 3 year ITR with computation of Income including P & L a/c, balancesheet with their schedule and annexures duly certified by CA
  • Form No. 3 CA & 3 CD in case of audited balance sheet
  • Latest 2 years VAT/ Sales Tax/ GST return
  • Latest 2 year form 26AS if applicable

BANK STATEMENTS :-One year up to date all the saving and current account statement

LOAN DOCUMENTS

  • Copy of Sanction Letter
  • Up to date loan account statement
  • Loan repayment schedule
  • 12 Month upto date bank statement showing repayment of the loan
  • Loan closure proof if loan is closed

PROPERTY DOCUMENTS

  • Copy of previous chain of property papers
  • Copy of approved sanction plan or Map

KYC DOCUMENTS

  • Pan Card
  • Aadhar Card
  • Voter ID Card
  • Passport
  • Latest Month Electricity Bill
  • Copy of Rent Agreement/ Registered Lease Deed

INCOME DOCUMENTS

  • Latest 3 year ITR with computation of Income
  • Latest 2 year form 26AS if applicable

BANK STATEMENTS : One year up to date all the saving account statement

LOAN DOCUMENTS:

  • Copy of Sanction Letter
  • Upto date loan account statement
  • Loan repayment schedule
  • 12 Month upto date bank statement showing repayment of the loan
  • Loan closure proof if loan is closed

PROPERTY DOCUMENTS:

  • Copy of Sanction Letter
  • Upto date loan account statement


Partnership Firm Document


KYC DOCUMENTS:

  • Pan Card
  • Copy of VAT/ Sales Tax, GST, Import-Export Certificate or any other registration certificate
  • Copy of Partnership Deed
  • Latest office address proof i.e. electricity bill, rent agreement etc.
  • Company Profile on the Letterhead of the firm

INCOME DOCUMENTS:

  • Latest 3 year ITR with computation of Income including P & L a/c, balancesheet with their schedule and annexures duly certified by CA
  • Form No. 3 CA & 3 CD in case of audited balance sheet
  • Latest 2 years VAT/ Sales Tax/ GST return
  • Latest 2 year form 26AS if applicable

BANK STATEMENTS : One year up to date all the current account statement

LOAN DOCUMENTS:

  • Copy of Sanction Letter
  • Up to date loan account statemen
  • Loan repayment schedule
  • 12 Month upto date bank statement showing repayment of the loan
  • Loan closure proof if loan is closed

KYC DOCUMENTS:

  • Pan Card
  • Aadhar Card
  • Voter ID Card
  • Passport
  • Latest Month Electricity Bill
  • Copy of Rent Agreement/ Registered Lease Deed

INCOME DOCUMENTS

  • Latest 3 year ITR with computation of Income
  • Latest 2 year form 26AS if applicable

BANK STATEMENTS : One year up to date all the saving account statement

LOAN DOCUMENTS:

  • Copy of Sanction Letter
  • Upto date loan account statement
  • Loan repayment schedule
  • 12 Month upto date bank statement showing repayment of the loan
  • Loan closure proof if loan is closed

PROPERTY DOCUMENTS:

  • Copy of previous chain of property papers.
  • Copy of approved sanction plan or Map.


Private Limited or Limited Company Documents


DOCUMENTS:

  • KYC DOCUMENTS
  • INCOME DOCUMENTS
  • BANK STATEMENTS
  • LOAN DOCUMENTS