Cash Credit
Cash Credit facility is basically a finance to meet working capital requirement of any business enterprise
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Cash Credit facility is basically a finance to meet working capital requirement of any business enterprise and therefore it is commonly known as Working Capital finance. Under this facility borrower can withdraw the amount for procurement of inventory, payments to outstanding creditors, payments to employees & day to day running expenses from the cash credit account up to the sanctioned limit/ drawing power available. The limit is sanctioned by the bank based on the business cycle that is also called working capital cycle of the enterprise considering the working capital gap and the stipulated margin termed as net working capital.
The limit is sanctioned by the bank based on the business cycle that is also called working capital cycle of the enterprise considering the working capital gap and the stipulated margin termed as net working capital. - After setting of the limit the calculation of Drawing power in the account is an important aspect. This drawing power is determined, based on the value of paid up stock and book debts after reducing the margin as per the statements submitted by the borrower at monthly interval. The cash credit limit is usually secured by hypothecation of current assets which includes inventory, and book debts etc.
- The excess withdrawal of cash is made generally on specific demand from the customer commonly known as overdraft facility and the customer has to pay additional interest which is generally 2 % over and above regular rate of interest on the excess amount he/she has withdrawn. The Cash Credit facility is quite useful to every business organistaion where the borrower require to maintain particular level of current assets and existing short term & long term sources are not sufficient to finance the same. Precisely the bank borrowing by way of cash credit facility is the level of current assets less current liabilities and margin (NWC) available as per the financial statement of the enterprise.
- The cash credit facility is required to be renewed every year as specified at the time of sanction of the facility.
- If borrower is failed to comply with the terms of sanction/ operation of the account as per norms/ submission of various statements including stock & Book Debt statement the bank can refuse for renewal of the limit and can also recall the entire advance in accordance with the conditions stipulated at the time of sanction.
The borrower and/or the guarantors have to provide the following documents to the banks or the lending institutions while submitting Overdraft against Gold Application. Certain documents may be demanded by the bank or the lending institutions in post sanction phase or on periodical basis.
- Address Proof : Latest Electricity/Telephone Bill or Receipt of Maintenance Charges or Valid Passport or Voter’s Identity Card or Purchase/Lease Deed/ Leave & License Agreement of Residence or Office Premises.
- Identity Proof : Valid Passport, PAN Card, Voter’s Card, Any other photo identification issued by Government Agencies.
- Business Proof : VAT/CST Registration No. or SSI Permanent Registration Certificate of Shop & Establishment Act Certified copy of Lease Agreement along with the latest Rent paid Receipt.
- Business Profile on Company’s Letterhead.
- Partnership deed in case of partnership firms.
- Certificate of incorporation, Date of Commencement of Business and Memorandum of Title Deeds, Form 32 in for Addition or Deletion of Directors in case of companies.
- Last three years Trading and Profit & Loss A/c. and Balance Sheets (duly signed by a Chartered Accountant wherever applicable)
- Projected Trading & Profit & Loss account and Balance Sheet for next two years to set up the limit as per projections.
- Last one years Bank statement of the Firm.
- If existing loan, then sanctioning letter and repayment schedule of the same.
- Trading & Profit & loss accounts and Balance Sheet of sister concerns in which the promoters have substantial stake.
- Firm/Company’s PAN Cards.
- Individual Income Tax Returns of the Individual/Partners/Directors for last three years.
- Last one years’ Bank statement of Individuals, Partners, Directors.
- SEBI formalities in case of listed companies.
- Share Holding pattern of Directors duly certified by a Chartered Accountant.
- Written & approved confirmation of having No Legal Suit filed against any of the directors. If any such legal suit or proceedings are pending then the details of such legal suit or proceeding.
- Details of any disputed liabilities and their present status.
All the banks provides Cash Credit facilities and more or less follow the following procedure.
- Application in prescribed format.
- Due diligence on the details given by the borrower and verification of the same.
- Interview of the promoter/ borrowers.
- Bank's Field Investigation for physical verification of the place of business and residence of the borrower.
- Verification of the documents from the originals.
- Checking of CIBIL report / RBI defaulter list.
- Assessment of the credit limit which can be considered for sanction.
- Issuance of Sanction Letter by the bank & acceptance of the same by borrower.
- Execution of documents & creation of Security as per terms of sanction.
- Disbursement.
