Working capital limits let a business draw funds as needed up to a sanctioned limit, and repay as cash comes in. The two most common forms are Cash Credit (CC) and Overdraft (OD).
Cash Credit (CC)
- Usually secured by hypothecation of stock and book debts
- Available amount linked to 'drawing power' calculated from periodic stock statements
- Suited to traders and manufacturers with inventory and receivables
- Typically renewed annually after review
Overdraft (OD)
- Often secured by property, fixed deposits or other assets
- Limit may not depend on monthly stock statements
- Suited to service businesses and professionals with fluctuating needs
- Terms and renewal depend on the lender and security
Questions to ask yourself
- How long is my operating cycle from purchase to collection?
- Do I hold significant stock or receivables?
- What security can I offer?
- How seasonal is my business?
The right structure depends on your cash cycle, security and the lender's policy. Interest rates, charges and drawing-power rules are set by the lender, compare sanction terms carefully.
Abhigamyah Fins is a loan consultancy. We are not a bank or lender. All lending decisions, interest rates and terms are decided solely by the relevant lender. Loan approval is not guaranteed.
