Overdraft / Cash Credit Facility

An Overdraft (OD) or Cash Credit (CC) Facility is a short-term working capital loan provided by banks to help businesses meet daily financial needs.
It allows account holders to withdraw more money than the actual balance in their account, up to an approved credit limit, ensuring uninterrupted operations and smooth cash flow.
These facilities are ideal for businesses, traders, and manufacturers facing irregular cash inflows and requiring flexible access to funds for day-to-day operations.

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    Types of Overdraft / Cash Credit Facility

    Overdraft and Cash Credit facilities come in various forms based on security, business needs, and loan structure. Below are the major types offered by Indian banks and financial institutions:

    Secured Overdraft / Cash Credit Facility

    Granted against collateral security such as property, fixed deposits, insurance policies, or inventory. The loan amount is decided based on the value of the security pledged, providing lower interest rates compared to unsecured options.

    Unsecured Overdraft Facility

    Offered to businesses or individuals without any collateral, primarily based on credit history, business turnover, and relationship with the bank. This facility is suitable for established businesses with consistent revenue or strong banking performance.

    Overdraft Against Fixed Deposit (FD)

    Allows borrowers to withdraw funds up to 90% of the FD value, while continuing to earn interest on the deposit. A convenient option for individuals or small business owners needing immediate liquidity.

    Cash Credit Against Stock and Receivables

    Common for manufacturing and trading businesses, where the CC limit is sanctioned against inventory and outstanding invoices. The limit fluctuates based on the value of current assets.

    Personal Overdraft Facility

    Given to salaried professionals or individuals with a regular income source. The overdraft limit is determined based on salary, employment stability, and credit score.

    Business Overdraft Facility (OD Limit for SMEs & MSMEs)

    Specially designed for MSMEs, enabling them to manage working capital requirements, purchase inventory, or pay suppliers on time. Often linked to current accounts for easy access and repayment.

    Why Is Overdraft / Cash Credit Facility Important?

    Ensures Business Liquidity

    Provides instant access to funds, ensuring smooth cash flow during short-term financial crunches.

    Flexibility in Borrowing

    Businesses can withdraw funds as and when needed, and interest is charged only on the utilized amount.

    Helps Manage Working Capital

    Enables businesses to handle inventory purchases, salary payments, and supplier dues efficiently.

    No Fixed EMI Burden

    Repayment is flexible; borrowers can repay anytime within the sanctioned period, depending on cash inflows.

    Reduces Financial Stress

    Acts as a financial cushion during unexpected expenses or revenue delays.

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    FAQs

    What is the difference between an Overdraft and a Cash Credit Facility?

    An Overdraft (OD) is usually linked to a current or savings account for temporary cash needs, while a Cash Credit (CC) is a formal working capital loan tied to business assets like stock or receivables.

    • Businesses and MSMEs with regular cash flow
    • Self-employed professionals
    • Salaried individuals (for personal overdrafts)

     

    The limit is based on business turnover, credit history, collateral value, and banking relationship with the lender.

    It depends. Secured facilities require assets (property, FD, inventory), while unsecured facilities are granted based on creditworthiness.

    Interest is charged only on the amount utilized, not on the total sanctioned limit. Rates vary by bank and borrower profile.

    Generally, these are renewable annually, with periodic reviews by the bank based on financial performance.

    Yes. Many banks offer personal overdraft facilities to salaried customers with steady income and good credit history.