Cash credit is one of the short-term business loan entrepreneurs who want to get quick working capital can look forward to cash credits. On the other hand, an overdraft facility offers long-term financial assistance. You can withdraw the money from your bank account even if you have zero balance. Both cash credit and overdraft facilities are credit facilities that lenders and banks offer to the borrowers. The lender tends to use the hypothecation of the inventory of the company for this purpose. Some financial institutions consider bank statements as well.
Cash credit
- The cash credit interest rate is lower when compared to the overdraft facility.
- You can take up cash credit only for business purposes.
- The value of cash credit does not deplete over time.
- Looking at the volume of inventory and stocks, one can offer the cash credit loan amount.
- To open a new account to avail of the cash credit.
- Based on the market situation and business performance, the lender would sanction the cash credit.
- The lender of a scratch credit for a minimum of one year
- Any individual or retailer, including manufacturers, traders, distributors, partnerships, companies, or proprietorship, can look forward to the cash credit facility.
Overdraft facility
- The interest rates of the overdraft facility are comparatively higher than the cash credit.
- One can use the overdraft loan amount for any purpose. You can also use this for business-related requirements.
- In case of an overdraft, you will face a monthly reduction.
- Based on your security deposits and financial statements, the lender would credit the overdraft amount.
- Based on relationship with the bank, credit history, and other investments like insurance policies and fixed deposits, the borrower can avail of the overdraft facility.
- Borrowers can also take up the overdraft facility for a short period, like a quarter or a month.
- Based on the credit history and financial statements, one can avail of the overdraft facility.
- If the borrower has an account on the respective bank from where you are taking the overdraft facility, only the borrower can apply for it.
Advantages
Both overdraft facilities and cash credits are advantageous for the borrower. In the case of cash credit, the borrower can enjoy the working capital at the earliest. It helps in the smooth operation of the business. The cash credit interest rate is also nominal. Hence the borrower does not face any problem during the loan tenure. You need to pay the interest only on the amount that you use. With fast processing and minimal documentation, cash credit can be convenient for any businessman. Not to mention the flexibility of this facility.
If you are looking for cash credit vs overdraft, the overdraft facility helps maintain a good credit score. It also ensures the borrower about the timely repayment of a loan with a minimum cost of interest. The minimum paperwork required during the overdraft facility can be helpful.
How to apply?
Whatever type of loan you choose, you can apply for it either online or offline. Most lenders encourage the borrowers to go for online applications. To apply online, the borrowers should visit the official portal of the financial institution. Once you fill-up the application form and click on the done button, your choice of company will try to contact you. Through the process of application, you will be getting professional help. If you don’t want to choose the online method, you can visit the lender personally and apply for the loan amount.
Whatever loan option you are looking for, you need to do the research first. Evaluation of the available options should be your first stance. Lending now has become a booming industry. Therefore naturally, the loan-taking phenomenon is a breeze. But make sure that you do not borrow the amount that you cannot afford.
You need to calculate the EMI interest and income before you take up any loan amount. Moreover, you should always read the terms and conditions before you accept any loan amount.
