Cash Credit and Overdraft
Cash credit (CC) and overdraft (OD) are limits, not loans. The bank sanctions an amount; you draw what you need, when you need it, and pay interest only on what you have drawn, for the days you have drawn it. CC is secured on stock and receivables and used for day-to-day business needs; OD sits on a current or savings account and is often secured on deposits or property.
We explain what lenders usually ask for and help you get your papers in order — the first call is free.
Estimate your interest
Overdraft / cash credit interest estimator (estimate only)
Interest on a cash-credit or overdraft account is charged only on what you draw, for the days it is drawn. Enter an average drawn balance, the yearly rate and the number of days. The estimate uses a 365-day year and a constant balance; your actual daily balances, the bank’s interest method and your sanction terms will change the figure.
Estimate only. Your lender sets the actual rate, EMI and charges.
Interest on a CC/OD is charged on the daily drawn balance and usually debited monthly. Estimate only.
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Details
What lenders usually check
- For CC: sales, operating cycle, stock and receivables, and financials — as for working capital.
- For OD: the security offered (deposits, property, salary for personal OD) and your repayment record.
- Bank statements — how the account has been operated.
- Existing limits elsewhere.
Documents to keep ready
- Business registration, GST, MSME registration, PAN.
- ITR, financial statements, GST returns and bank statements, as for working capital.
- For CC: stock and receivables statements, debtor and creditor lists.
- For OD against deposits: the deposit receipts. Against property: full title papers.
Repayment
No EMI. The account must stay within the limit and show turnover — credits coming in and drawings going out. Interest is debited monthly and must be serviced. The limit is reviewed and renewed yearly. If the account stays overdrawn beyond the limit or interest is not serviced, it can be classified as SMA and then NPA; note that CC/OD accounts have no SMA-0 stage under RBI rules.
Interest and charges
Rate on the drawn amount; processing and renewal fees; sometimes a commitment charge on the unused limit; penal interest for exceeding the limit or for late stock statements. Ask for all of them in writing.
Security or own contribution
CC: hypothecation of stock and receivables, with a margin, often plus collateral or a personal guarantee. OD: lien on deposits, mortgage of property, or unsecured for small salary-linked ODs.
How to prepare
Operate one main business account and route everything through it. Submit stock statements on time. Keep the account turning over — a limit that is always fully drawn worries the bank. Prepare the same figures as for working capital.
Questions about cash credit and overdraft
Which is better for my business, CC or OD?
CC is designed for businesses with stock and receivables. OD suits shorter or irregular needs, or where you can offer deposits or property. Ask the bank which fits your cycle.
Do I pay interest on the whole limit?
No — only on what you have drawn, for the days drawn. Some banks charge a small fee on the unused part.
Is there an EMI?
No. There is no fixed instalment. You keep the account within the limit and service the monthly interest.
What is "drawing power"?
The amount you may actually draw, calculated from your latest stock and receivables statement after margin. It can be lower than the sanctioned limit.
What happens at renewal?
The bank reviews your financials and account conduct and can continue, raise, reduce or withdraw the limit. Apply for renewal before the due date.
Can I use CC to buy machinery?
It is meant for working capital. Long-term assets should be funded by a term loan; using CC for them strains the cycle and the bank may object.
What if my account is overdrawn beyond the limit?
Penal interest, and the bank may return payments. Persistent excess or unserviced interest leads to SMA/NPA classification.
What we do here: we explain what lenders usually ask for and help you get your documents in order. We do not lend, arrange loans or take commission. The first call is free. See what we do.
