Cash credit

A cash credit is an arrangement by which a bank allows his customer to borrow money up to a certain limit against some tangible securities or guarantees. The interest is charged on the daily balance and not on the entire amount of the account. Hence it is the most favourite mode of borrowing by industrial and commercial concerns.

As with many types of financial assistance, cash credit is extended under terms that are set and controlled by the institution that provides the loan. Typically, this involves the presentation of some form of security in order to be covering the amount of the loan that is extended by the bank or loan agency. The security of collateral remains accessible to the lender until the debt is repaid in full.

One main benefit for a new business is that this form of credit can be an excellent way of setting the stage for a long term working relationship with a lender. Upon successfully complying with the terms of the agreement, the business may become eligible for other forms of assistance from the financial institution, including other forms of cash loans and the establishment of a conventional line of credit.