Cash Credit Limit
Cash Credit is a type of short term loan provide by the banks in which the withdrawal of money by the company is not restricted to the amount the borrower holds.
The cash credit account just functions like a current account with cheque book facility. The facility is provided against hypothecation of stock ,raw materials, work in progress, finished goods, etc. or on the guarantee of book debts (debtors) and other collateral as per banking company norms. The purpose of taking cash credit is to fulfill the problem of cash liquidity of the firm or the company.
The withdrawal is usually specified by the bank or financial institution as well as it can vary from bank to bank and borrower to borrower. Interest is charged by the bank on the amount overdrawn not on the limit sanctioned. The bank can withdraw the money at any time it wants.