What is an overdraft facility and how does it work?
An overdraft facility, also called an overdraft protection line, a revolving credit arrangement, or a current account advance, is a credit instrument where the bank allows you to withdraw more money than your existing account balance up to a pre-approved sanctioned limit. The borrower is charged interest only on the amount actually utilised and for the duration it remains outstanding, making it a cost-effective variable funding mechanism. Interest is calculated on a daily reducing balance basis, meaning you pay less if you repay quickly.
What is cash credit and who can apply?
Cash credit, also known as a cash credit facility, a working capital advance, or a revolving business credit line, is a short-term borrowing arrangement extended to businesses against the security of current assets such as inventory, stock-in-trade, raw materials, work-in-progress, and accounts receivable. The cash credit limit is typically set at 70% to 80% of the value of eligible current assets. Interest is charged only on the amount withdrawn and for the period it remains utilised.
What is the difference between overdraft and cash credit?
An overdraft facility, also called a current account overdraft or a demand lending arrangement, is typically granted against the security of a current account, fixed deposits, insurance policies, or property, and is available to both individuals and businesses. A cash credit facility, also known as a working capital advance or a hypothecation-based credit line, is exclusively available to businesses and is secured against current assets. The key differences: (1) overdraft can be secured or unsecured while cash credit is always secured, (2) overdraft is linked to a bank account while cash credit is standalone, (3) overdraft limits are generally lower, and (4) cash credit requires annual renewal and stock audit.
What is the interest rate on OD/CC loans in Coimbatore?
OD/CC loan interest rates in Coimbatore typically range from 9% to 15% per annum depending on the lender, credit profile, collateral value, and sanctioned limit. Overdraft facility interest rates generally range from 10% to 14% per annum. Cash credit interest rates typically range from 9% to 13% per annum for well-established businesses with strong collateral coverage. Interest is calculated on a daily reducing balance basis, meaning you pay interest only on the outstanding utilised amount for each day it remains drawn.
What documents are required for an OD/CC loan application?
Documents required include identity proof (Aadhaar card, PAN card, passport), address proof (utility bills, voter ID, rent agreement), business registration documents (GST registration certificate, partnership deed, incorporation certificate, MSME Udyam registration), financial documents (audited balance sheet, profit and loss statement, income tax returns for the last 2 years, bank statements for the last 6 to 12 months), and collateral documents (inventory stock statements, warehouse receipts, property papers, fixed deposit certificates). For cash credit, additional documents include stock statements and debtors-creditors ageing analysis.
What is the difference between OD/CC and a term loan?
An overdraft or cash credit facility is a short-term credit instrument where the borrower can draw, repay, and re-draw funds repeatedly within a sanctioned limit, and interest is charged only on the utilised amount. A term loan is a lump-sum disbursement repaid through EMIs over a fixed repayment period. Key differences: (1) OD/CC is revolving while term loan is amortising, (2) OD/CC is for short-term working capital while term loan is for long-term capital expenditure, (3) OD/CC interest is on daily utilised balance while term loan EMI includes both principal and interest, (4) OD/CC requires annual renewal while term loan has a fixed tenure.
What is the maximum limit for an overdraft or cash credit facility?
For individuals, overdraft limits typically range from ₹50,000 to ₹10 lakhs. For businesses, overdraft limits can extend up to ₹1 crore based on average monthly balance and transaction history. Cash credit limits are determined by Working Capital Gap Analysis and are typically set at 70% to 80% of eligible current assets. For small businesses in Coimbatore, cash credit limits range from ₹5 lakhs to ₹5 crores, while larger enterprises can access limits up to ₹25 crores or more.
Can I get an OD/CC loan without collateral in Coimbatore?
Yes, unsecured overdraft facilities, also called collateral-free overdraft lines, are available for borrowers with strong creditworthiness, high CIBIL scores (above 750), and stable income profiles. Banks may offer unsecured overdraft limits of up to ₹5 lakhs to salaried professionals and up to ₹10 lakhs to established businesses. However, secured OD/CC facilities offer significantly higher limits, lower interest rates, and more favourable terms. For cash credit, security in the form of inventory, receivables, or property is typically mandatory.
How long does it take to get an OD/CC loan approved?
OD/CC loan approval time typically ranges from 5 to 20 working days. For existing bank customers with complete documentation, overdraft facilities can be approved within 5 to 7 working days. New cash credit facilities may take 10 to 20 working days due to additional requirements including stock audit, property valuation, credit committee review, and legal scrutiny of collateral documents. Katir Associates accelerates the process through pre-verified documentation and relationships with multiple lending institutions.
What industries can benefit from OD/CC loans in Coimbatore?
OD/CC loans benefit a wide range of industries in Coimbatore's economy. The textile industry (power loom operators, garment manufacturers, yarn traders) uses cash credit for raw material procurement. The engineering and manufacturing sector (pump manufacturers, motor producers, auto component makers) relies on overdraft for cyclical working capital. The agricultural sector (coconut traders, turmeric processors, dairy operators) uses OD/CC to bridge procurement-to-sale gaps. The IT and services sector and the retail and trading sector also benefit from revolving credit facilities.
What is the repayment process for OD/CC loans?
OD/CC loan repayment follows a flexible drawdown-and-repayment model. Unlike term loans with fixed EMIs, borrowers can withdraw and repay funds at any time within the sanctioned limit. Interest is calculated on the daily reducing balance. Repayment can be made through cash deposits, fund transfers, cheques, or direct credits from business receipts. The account is typically reviewed and renewed annually, with the lender assessing credit performance, account conduct, and collateral value before renewal.
What happens if I exceed my OD/CC limit?
Exceeding the OD/CC limit triggers a penal charge, typically at 2% to 4% above the standard rate, plus a flat over-limit penalty fee. The lender may reduce the sanctioned limit, refuse renewal, or classify the account as a Non-Performing Asset (NPA) if the excess remains outstanding for more than 90 days. In extreme cases, the lender may initiate recovery proceedings. Katir Associates helps borrowers manage utilisation within limits and negotiate enhancements when additional working capital is required.
Flexible Working Capital Solutions
Get OD/CC loans in Coimbatore from Katir Associates. Manage your business cash flow with competitive rates.
