WC, CC & others

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

14 July 2010 experts,
what is the diff. b/w

Cash credit
Overdraft
Working capital loan
term loan

pl give eg. of each. also mention the limit,repayment,security taken by bank & interest charged for each one.

thnx

Srikant

Srikant (Expert)
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14 July 2010 Cash Credit,Overdraft, Working Capital Loan
_______________________________________
A thin line difference.
Like siblings,ok

Cash Credit
Is a short term loan from bank for running the day to day affairs, maintenance of business.
The Loan taking Client has to submit a margin (continuous nature) for this purpose to the banker.
There is a limit set for this Cash Credit facility provided by bank and the client can go upto that limit.
The limit is set depending on the Credit worthiness and past records of client.
Period: varies from 12 to 24 months

Overdraft
It is a facility extended by banker only for Commercial Clients having Current Accounts in that bank.
Here the bank allows overdrawing capacity to the client for a short period (ofcourse wit interest)
Period: Ongoing....continuing nature

So the basic difference is Cash Credit is in the nature of short term financing where as Overdraft is a short term facility extended to Existing Current Account holders.

Working Capital Loan
Some times Wc Loan is also termed as CC loan.
But the difference is CC loan is based on CASH requirements of a Company where as Working Capital Loan is based on Working Capital needs of a Company (i.e Fund required upto Recovery of Debtors, Sale of finished goods, etc)

This is the reason for which the Bank asks Fund Flow statements and Sundry Debtor Statement and Stock statement.
(to assess the working capital needs of a Company and utilisation of the loan amount if already taken by the Company)
Period: 1 to 2 Years subject to renewal

Now the Term Loans:
*Term Loans are basically Long term loans.
*Against Mortgage of property / Fixed assets, Guarantees by the directors, etc.
* Mortgage in equitable nature
*Form 8 alongwith the copy of resolution filled at ROC for this.
The period is longterm in nature (say 2 to 5 or 10 years)

Please note that w.e.f 01.07.2010 BASE RATE system has been introduced by RBI, hence rate of Interest will be based on Base rate (plus some thing)depending on the credit worthness of the party and it will vary from party to party.

Am I Clear enough to understand ?

Querist : Anonymous

Querist : Anonymous (Querist)

14 July 2010 I've understood the diff now....thank you!

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