What is an Overdraft (OD) Limit?
An Overdraft (OD) limit is a credit facility provided by banks that allows businesses or individuals to withdraw more money than what is available in their account, up to a pre-approved limit. It helps manage short-term cash flow needs and provides financial flexibility.
What is a Cash Credit (CC) Limit?
Cash Credit (CC) is a type of short-term loan that enables businesses to borrow funds against their inventory, receivables, or other current assets. The borrower can withdraw funds up to a specified limit and repay as per the business cycle.
Benefits of OD and CC Limits
- Improves Cash Flow – Helps businesses manage working capital efficiently.
- Interest is Charged Only on Utilized Amount – Unlike traditional loans, interest is applied only on the amount withdrawn.
- Flexibility in Withdrawals and Repayments – Borrowers can access funds as needed and repay anytime within the limit.
- Short-Term Financial Support – Ideal for businesses facing temporary cash shortages or seasonal fluctuations.
- Enhances Business Growth – Provides immediate capital for expansion, inventory purchases, and operational expenses.
Secured and Unsecured OD & CC Limits
Secured OD & CC Limits
- Backed by collateral such as fixed deposits, property, inventory, or receivables.
- Offered at lower interest rates due to reduced risk for lenders.
- Higher credit limits are available compared to unsecured options.
Unsecured OD & CC Limits
- No collateral required, but based on business performance, creditworthiness, and banking relationships.
- Interest rates are higher due to increased lender risk.
- Suitable for startups and businesses without significant assets to pledge.
Both OD and CC facilities provide essential financial support for businesses. Depending on the credit profile and asset availability, businesses can opt for secured or unsecured options to meet their short-term funding needs efficiently.