Feb 13, 2012

Definition of Cash Credit facility
There are many ways to raise finance; Cash Credit is one of the many ways of raising finance. Cash Credit makes a provision by lender (mainly bank or financial institute) for loan (also called advance, finance, credit etc) by depositing the sanctioned amount of the loan into new account from which borrower (business organization) can withdraw as per requirement within permissible amount fixed by lender for specific time or period.

Example: - say, ABC Ltd needs ` 1,15,000 for payment to supplier of raw materials. Bank permits `1,00,000 per day as cash credit limit for this period. In this situation ABC Ltd can withdraw only `1,00,000. Interest also calculated on ` 1,00,000 on daily basic, not on ` 1,15,000.

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