Cash credit is a cash financial service given to a company. The bank provides the funding only after they acquire the required security to secure the financial service. When the security has been provided, the company can continuously draw money from the bank to the specified limit set by the bank.
Cash Credit is offered to businesses to finance their working capital requirements. The businesses can buy raw materials, machinery or buildings. The overdrawing limit will be set by the bank and the limit is sanctioned based on the working capital requirement of the company minus the margin.
Cash credit account is very much similar to the current account which allows overdraft facility occasionally whereas cash credit account is supposed to be overdrawn continuously.
A business entity can procure a cash credit financial service only when it furnishes a security to secure the financial service. This security can be submitted in the form of finished goods, work-in-progress goods, raw materials, stock-in-trade, spare products, and store products under cash credit financial services, the borrower has to provide collateral to get the necessary cash.
The borrower will be required to pay interest only on the amount that is used by him or her. Cash credit financial services are typically offered to business entities.
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