What is Cash Credit Loan or CC loan (What is a Cash Credit Loan or CC loan in Bangladesh)?
Any business needs regular cash flow for their day to day operations.
And, if for some reason the operating capital requirements of a business are not properly met, then smooth business operations can be severely affected.
This cash credit loan or working capital loan is useful in any financial crisis of any business.
Which, of course, made the video an overnight sensation.
Today in our article we will discuss, what is CC or cash credit loan, its features, advantages and disadvantages.
Let us first know what is meant by working capital loan or CC loan.
What is Cash Credit / CC Loan?
Cash credit loan is a type of short-term bank-approved loan; Which various businesses, financial institutions and companies take to meet their working capital requirements.
In this case, the borrower companies can take money up to the existing limit of borrowing in addition to the credit balance.
This CC Loan is basically a short term plan for a loan of up to 12 months.
It is possible to renew the loan even after it has complete.
That is, in the case of this cash credit loan, merchants can withdraw money from their bank account as many times as they wish, up to a pre-determined loan limit.
However, interest is charged only on the amount borrowed and not on the entire loan amount (credit).
Basically, businesses can use this loan to collect raw materials, buy equipment, meet various expenses, repay the loan or incur inventory costs and various other operational expenses.
Businesses that take out cash credit loans must provide collateral to the lending bank.
Even assets, such as work progress products, inventory, and other securities have to be borrowed.
Generally, businesses need to have a valid account with each lender bank to get CC loan.
And, whenever working capital is needed, they will be able to use that money from the account.
Hopefully, you have got the answer to this question, what is Cash Credit Loan (What Is CC Loan in Bengali)?
Cash Credit Loan Features:
This type of loan has several obvious features; They are –
1. Loan limit:
The loan limit depends on the applicant’s borrowing ability and loan eligibility.
Money can withdraw many times according to the limit of borrowing in a cash credit account.
When additional cash is deposit in the account, the interest burden imposed on a company is reduce.
The amount of cash lending varies from bank to bank.
2. Interest on current balance:
Unlike other types of traditional loans, the interest charged on these CCC loans is based on the current balance of the cash credit account and not on the total loan limit.
3. Minimum commitment price:
In the case of these short-term loans, there is a very minimal cost involved in establishing a loan account, regardless of the borrower’s available credit usage.
Banks, for example, usually include a clause that requires borrowers to pay a minimum amount of interest on a predetermined amount or the amount of time it takes to withdraw money (whichever is higher).
4. Accessory security:
In order to get a cash credit loan, the borrower has to provide security to the bank.
Here companies have to take loans instead of assets or stocks.
Any bank has a condition that they have a security mortgage rule and its available value can be easily determined.
5. Credit Period:
This type of loan usually has a maximum loan term of 12 months.
Then, when it expires, you can re-evaluate it.
Benefits of CC Loan:
We are going to discuss below the benefits and advantages of CC loan.
1. Sources of working capital financing:
Cash credit loans are a significant source of working capital financing.
Because, the company gets access to cash whenever it wants.
As a result, companies can easily get the money they need without having to worry about selling cash or assets.
2. Easy management:
It is easy for both banks and companies to arrange these loans.
Under the terms, if the security is available to the company for mortgage, it is easy to determine the available price.
And, until the value of the loan is determined, the bank can easily arrange a cash credit loan by pledging the collateral.
The company is given enough flexibility to take this loan.
You can withdraw as much as you want from the cash credit account until the borrowing limit is exceeded.
Again, if additional cash is deposited in that account, the interest rate on that company also goes down.
4. Tax deduction possible:
Tax deductions are made on interest payments to reduce the overall tax burden on the company.
So, to lighten the overall tax burden of the company, deposit the additional funds of the company in the account immediately.
Here you have to pay interest on the amount you borrow.
Cash credit loans reduce customer financing costs.
This is because the amount of interest depends only on the amount of money used or the minimum commitment charge.
Disadvantages of CC Loan:
Now we are going to discuss the disadvantages of CC salt.
1. High interest rates:
On a cash credit loan, the interest rate is much higher than a conventional loan.
2. Minimum commitment charge:
Whether the company uses its cash credit or not, a minimum commitment charge is deduct from the borrower.
3. Security complications:
The borrower depends on the company’s turnover, expected performance, account balance, and the security of the security provided, so the short-term loan is give to the company.
Thus, it becomes difficult for the new company to get this loan.
4. Temporary source of money:
This type of loan is a source of short-term financing.
However, no company can rely on this loan for extended period of time.
However, once the loan expires, you must renew it under the new terms.
This is the end of today’s article about what is cash credit loan or what is CC loan (what is cc loan in Bangla). If you like the article, please let us know in the comments.
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