Get the Tata Capital App to apply for Loans & manage your account. Download Now

Blogs SUPPORT
Loans For You
Loans for Business
Investment
Insurance
Apply

Quick Links for loans

Quick Links for Insurance

Investment

Offers Quick Pay
Back

Equipment Finance

Avail Digital Equipment Loans
up to Rs. 1 Crore

  • Attractive ROIs
  • Customizable Loan tenure
Know More
Back

Equipment Leasing

Avail Leasing solutions
for all asset classes

  • Up to 100% financing
  • No additional collateral required
Know More
Back

New Commercial Vehicle Financing

  • First time user
  • Retail and strategic Clients
Know More
Back

Used Commercial Vehicle finance

  • Repurchase
  • Refinance
  • Top up
  • Balance Transfer
Know More
Menu  
 
Apply Now

Tata Capital > Blog > Loan for Business > Cash Credit vs Overdraft: What Is The Difference Between Cash Credit vs Overdraft?

Loan for Business

Cash Credit vs Overdraft: What Is The Difference Between Cash Credit vs Overdraft?

Cash Credit vs Overdraft: What Is The Difference Between Cash Credit vs Overdraft?

As a business owner, you’re aware that the number one factor responsible for the smooth functioning of a business is capital. And while there are many ways to procure business capital, two of the most popular of them are cash credit and overdraft facilities. But most people mistake one for the other or think they’re the same.

So, this guide will help you understand the difference between cash credit and overdraft so that you can make an informed choice for your business needs.

Cash credit vs. Overdraft: What is each?

Before getting down to the difference between cash credit and overdraft, let’s understand the basics of both. Both cash credit and the overdraft facility are considered to be business credit facilities that lenders offer to borrowers for which the lender uses hypothecation of the company’s inventories.

Hypothecation refers to giving company assets as collateral to secure a loan. Hypothecation is similar to collateral. The difference is that the borrower is the company instead of a person. Cash credit which is also known as a working capital loan, is a source of short-term finance for a company which helps in meeting instant cash requirements such as purchasing raw materials or day-to-day expenses.

An overdraft facility, on the other hand, is a financial instrument provided by lenders, using which you can withdraw money from your savings or current account even while you do not have sufficient balance. A fixed business loan interest rate will be levied to avail of the overdraft limit. This makes an overdraft facility a long-term financial solution.

Difference between cash credit and overdraft

As a business owner, your company’s financial needs are the top priority. Choosing the right credit facility is imperative in managing the affairs of your company optimally.  And knowing the difference between OD and CCcan be all that it takes to turn the odds in your favour.

So, let’s go through the differences between the two in greater detail.

Point of DistinctionCash CreditOverdraft Facility
PurposeIt is the part of business finance that allows you to meet short-term cash requirements, such as working capital, purchasing of raw materials, etc.This is a long-term business loan that is better suited for needs such as expanding your company or keeping it afloat.
Rate of Interest CalculationInterest is calculated on the entire amount you withdrawInterest is calculated only on the amount that is used
Opening of Bank AccountYou need to open a separate bank accountYou may use your existing bank account
Maximum amountYou can withdraw up to 60% of the value of your receipts and inventoryThe lender will decide the withdrawal limit
Withdrawal Limit ChargesChangeable based on the quantity and value of the inventoryUnchangeable
AvailablilityThis is available to businesses onlyThis is available to both businesses as well as individuals

Which option is suitable for your business needs?

It all depends on why you need the capital and what your business goals are. In case your credit score is low, and you wish to improve or want to repay loans on time to ensure your business stays in the game in the long run, then opt for the overdraft facility with your lender.

But, if your funding needs are only short-term, like arranging for working capital, then the cash credit is a better option.

In summation

Knowing the difference between OD and CC is very important when deciding which credit facility to choose for your business. Both offer their own unique features, but the needs and financial aspirations of your business are what you need to consider in order to decide.

So, have you chosen which way to go? For easy-to-access and hassle-free business finance solutions, get in touch with Tata Capital’s lending experts. With interest rates starting at just 19%, you can avail of a loan principal of up to Rs. 75 lakhs. Also, our business loan eligibility criteria are relaxed, and we offer flexible EMI options for smooth and easy repayment. Use our online business loan EMI calculator and know your monthly EMIs of Business Loan in advance.

Apply For Business Loan Now

Give Your Business the Right Boost: Apply for a Business Loan Today

Apply now
Popular Searches
business idea udyogini scheme hsn code full form low investment business ideas top 10 most successful businesses to start transport business import export business in india mineral water plant cost collateral free loans
Disclaimer

Most Viewed Blogs

Trending Blogs

Calculator

Personal Loan EMI Calculator

Personal Loan EMI Calculator
Home Loan EMI Calculator

Home Loan EMI Calculator
Business Loan EMI Calculator

Business Loan EMI Calculator
Used Car Loan EMI Calculator

Used Car Loan EMI Calculator
Two Wheeler Loan EMI Calculator

Two Wheeler Loan EMI Calculator
Loan Against Securities Calculator

Loan Against Securities Calculator
Loan Against Property Calculator

Loan Against Property Calculator
More Tools
Our Subsidiaries
Our Other Websites

Important Information

Investor Information

Visit us on:,Visit us on: www.tatacapitalmoneyfy.com,www.tatacapitalmoneyfy.com

Our Private Equity Funds

Amalgamated Companies

Top Branches
Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download

Policies, Codes & Other Documents

Most Important Terms & Conditions - Home Loans

Download in your preferred language

Download

Tata Capital Solutions & Services

Uh oh, something went wrong

Please try again later.