How to Get Cash Credit from Bank: Step-by-Step Guide

Last Updated: May 19, 2025

Bank representative explaining cash credit options"

Cash Credit (CC) is a type of short-term loan offered by banks to businesses to meet their daily working capital needs. Unlike traditional term loans, cash credit works like a revolving credit facility where the bank sanctions a specific limit, and the borrower can withdraw funds as needed, paying interest only on the amount actually used. To apply for cash credit, a business must be registered and should have a stable financial history, usually with at least one or two years of operations. The bank evaluates the business based on its turnover, profitability, existing liabilities, and the availability of collateral, which is typically in the form of stock, inventory, or account receivables. To begin the process, you should first choose a bank—preferably one where you already have a current account or existing relationship—and inquire about their specific CC loan requirements. You will need to submit documents such as your business registration certificate, PAN card, address proof, recent bank statements, GST returns, audited financial statements (like balance sheet and profit & loss accounts), and details of stock or receivables. Once your application is submitted, the bank may conduct a site inspection to verify your operations. If approved, you’ll be granted a cash credit limit, such as ₹10 lakh, which you can draw from as needed. The interest is calculated only on the withdrawn amount, not the total limit, which makes it a cost-effective financing option for managing cash flow gaps. Maintaining proper repayment habits and using the funds efficiently can help build a strong credit profile for future borrowing. Overall, cash credit is a flexible and practical tool for businesses that need recurring access to funds without the burden of a full loan disbursement all at once.

Cash credit is a popular form of short-term financing that businesses use to meet working capital needs. It provides companies with a flexible borrowing option, allowing them to withdraw funds up to a pre-approved limit without the need for constant loan applications. If you're a business owner looking to take cash credit, this guide will help you understand the process, eligibility criteria, and key considerations to keep in mind.

What is Cash Credit?

Cash credit is a loan facility offered by banks and financial institutions that allows businesses to borrow funds against their inventory, receivables, or other current assets. Unlike a term loan, where a fixed amount is borrowed and repaid over time, cash credit operates like a revolving credit line—businesses can withdraw, repay, and withdraw again within the sanctioned limit.

Key Features of Cash Credit:

Flexible borrowing: Businesses can withdraw funds up to the approved limit.
Interest on utilized amount: Interest is charged only on the amount used, not the entire sanctioned limit.
Short-term nature: It is typically sanctioned for one year and renewable upon review.
Security-based: Usually backed by inventory, receivables, or fixed assets.
Overdraft facility: Works similarly to an overdraft, allowing businesses to manage cash flow efficiently.

Why Do Businesses Need Cash Credit?

Cash credit is particularly useful for businesses facing short-term cash flow gaps. Some common reasons for availing of cash credit include:

Managing Working Capital: Helps businesses maintain smooth operations by covering day-to-day expenses such as salaries, rent, and supplier payments.
Seasonal Demand: Ideal for businesses with fluctuating sales cycles, ensuring they have funds to purchase inventory in peak seasons.
Unforeseen Expenses: Provides an emergency fund to tackle unexpected costs.
Bulk Purchases: Allows businesses to buy raw materials in bulk at discounted rates.

Cash credit is a flexible form of borrowing that can be a useful tool for businesses to manage their cash flow. With cash credit, a lender agrees to provide a business with a certain amount of funds, which the business can then draw from as needed.

If you're considering taking out a cash credit facility, here are some steps you can take to make the process go smoothly:

Evaluate your business's financial situation: Before applying for cash credit, it's important to have a clear understanding of your business's financial position. Review your financial statements, cash flow projections, and any other relevant information to determine how much cash credit you might need and how you plan to use it.

Choose a lender: There are many lenders who offer cash credit facilities, including traditional banks, credit unions, and online lenders. Shop around to find a lender who offers terms and rates that are favorable to your business.

Gather your documents: To apply for cash credit, you'll typically need to provide a variety of documents, including financial statements, tax returns, and bank statements. Make sure you have all the necessary documents on hand before starting the application process.

Apply for cash credit: Once you've chosen a lender and gathered your documents, it's time to apply for cash credit. The application process will vary depending on the lender, but you'll typically need to provide information about your business, your financial situation, and how you plan to use the funds.

Wait for approval: After you've submitted your application, the lender will review it and determine whether to approve your cash credit facility. This process can take anywhere from a few days to several weeks, depending on the lender and the complexity of your application.

Draw from your cash credit: Once your cash credit facility is approved, you can begin drawing funds from it as needed. Be sure to use the funds responsibly and only for the purposes for which they were intended.

In conclusion, cash credit can be a valuable tool for businesses to manage their cash flow. By evaluating your financial situation, choosing a lender, gathering your documents, applying for cash credit, waiting for approval, and drawing from your cash credit responsibly, you can take full advantage of this flexible form of borrowing.