What’s the Difference Between Cash Credit and Overdraft?

What’s the Difference Between Cash Credit and Overdraft?

What’s the Difference Between Cash Credit and Overdraft?

Both small and medium businesses need capital from time to time to run their every day operations easily. There are two alternatives for taking a mortgage for enterprise desires: long-time period loans like small commercial enterprise loans, line of credit score, and so forth. Or brief-term flexible loans like coins credit and Overdraft.

In this put up, we’ll talk about brief-time period loans – Cash Credit and Overdraft. Because of the similarities in the functions of coins credit (CC) and Overdraft (OD), it’s easy to expect that they’re the equal. But those are two specific economic solutions designed to cater to different monetary requirements.

Let’s take a more in-depth take a look at the similarities and differences of CC and OD so that you can apprehend which of the 2 is a better option in your precise enterprise desires.

What is Cash Credit?
Cash Credit (CC) is a short-term mortgage offered to self-employed professionals and commercial enterprise proprietors to help meet their working capital requirements. Some key points approximately cash credit encompass:

You can use this loan best for commercial enterprise-related prices.
You are required to open a separate bank account for coins credit score to be deposited.
You can carry out as many transactions and request as many cheque books as you want.
You must publish files which includes income and loss statements, GST submitting, balance sheets, etc., once every sector and annually.
Generally, you’re requested to position up collateral to get a coins credit mortgage.
The mortgage can be repaid day by day or weekly, depending on the agreed phrases.
What is Overdraft?
Overdraft facility is credit funding extended by means of banks to choose customers. The OD facility permits cutting-edge account holders to withdraw money from their financial institution bills, even supposing their stability is low or maybe 0. Some key factors to realize about overdraft consist of:

An overdraft facility is best presented to clients who are in a valid financial role and have a terrific courting with the financial institution.
There is a price associated with the usage of this facility, and it varies from bank to financial institution. The charge quantity relies upon on the more amount you withdraw from the account.
Similarities between Cash Credit (CC) and Overdraft (OD)
Both cash credit and Overdraft are monetary tools that help groups to borrow money in opposition to financial statements or stock. Banks provide these quick-time period loans to select clients after assessing their monetary status and their relationship with the financial institution. Some of the other similarities encompass:

Both these monetary gadgets are provided against the safety of business property or present day inventory.
The hobby price for both is charged on the quantity used and no longer on
Difference Between Cash Credit and Overdraft

The table below gives the distinct difference between Cash Credit and Overdraft:

FeaturesCash CreditOverdraft
Interest ratesLower interest rate as compared to OverdraftComparatively higher interest rate
Security/CollateralCash credit loan is offered upon hypothecation of inventory and stocksOverdraft amount is decided based on the relationship with the bank, credit history, and investments such as FDs, insurance policies, etc.
UsageThe funds can be used only for business purposesThe funds can be used for expenses other than business needs
TenureTenure is generally of 1 yearThe loan duration can vary. It can be monthly, quarterly, half-yearly or yearly
Sanction amountThe loan amount is decided based on the volume of inventory and stocksThe loan amount is decided based on security deposits and financial statements
Who are eligibleIndividuals, traders, retailers, manufacturers, companies, partnerships, distributors, LLPs, sole proprietorships, etc. are eligible for cash credit loanOnly account holder of the respective bank are eligible for an overdraft facility

Both CC and OD are financial contraptions that come in accessible for agencies to satisfy their running capital needs. While each those products may also seem comparable, they may be extraordinary. Make positive you recognize the functions, similarities and variations of each merchandise to make an knowledgeable selection.

Alternatively, if you’re seeking out lengthy-term loans, then a small business mortgage may also make feel because the interest prices are relatively decrease. Check out My Advisers’ mortgage for self-employed to see if it is what you are searching out.

Biswajit Barman
Author: Biswajit Barman

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