Cash Credit Facility for Business: CC Limit Complete Guide
Cash Credit Facility for Business in India: CC Limit Explained
A cash credit (CC) facility is one of the most common forms of working capital finance in India. Unlike an overdraft (which is linked to your current account), a CC facility is linked directly to your business’s current assets, specifically your stock (inventory) and book debts (receivables). It is designed for businesses that need continuous access to short-term funds to run their operations.
Here is everything you need to know about how CC facilities work, who can get one, and what the costs look like.
What Is a Cash Credit Facility?
A cash credit facility is a revolving credit line where the sanctioned limit is determined based on your working capital requirements, typically assessed through your current assets (stock and debtors) minus your current liabilities. You can draw funds up to the CC limit at any time and repay as and when cash flows in.
The key difference from an OD: a CC account is a separate account from your current account. You draw funds into your CC account and use it for business operations. Interest is charged daily on the outstanding balance, just like an OD.
How the CC Limit Is Calculated
Banks use a method called the Nayak Committee method for computing the working capital gap for small businesses:
- Calculate 25% of the business’s projected annual turnover (this is the minimum bank finance norm under RBI guidelines).
- Deduct the business’s own margin contribution (usually 5% of turnover).
- The residual is eligible for CC financing.
Larger businesses undergo a more detailed assessment including projected working capital cycle, stock holding levels, debtor collection period, and current liabilities.
Interest Rates
| Bank | CC Rate (per annum) | Minimum CC Limit |
|---|---|---|
| SBI | 9.15% to 13.50% | Rs 5 lakh |
| HDFC Bank | 11.90% to 18.50% | Rs 10 lakh |
| ICICI Bank | 10.75% to 18.00% | Rs 10 lakh |
| Axis Bank | 13.95% to 18.50% | Rs 10 lakh |
| Bank of Baroda | 9.40% to 14.25% | Rs 5 lakh |
Eligibility
- Businesses engaged in trade, manufacturing, or services with verifiable stock and debtors.
- Minimum business vintage of 1 to 2 years with audited or CA-certified financials.
- Annual turnover of at least Rs 25 lakh for most banks.
- Clean repayment history on existing credit facilities.
- Promoter’s CIBIL score above 650 (700 preferred).
- For limits above Rs 25 lakh, the bank typically requires collateral (hypothecation of stock and debtors is standard; some banks also require a property mortgage).
Documents Required
- Audited financial statements (balance sheet, P&L) for the last 2 to 3 years
- Stock statement (list of current inventory with values)
- Debtors and creditors aging report
- Bank statements for the last 12 months
- GST returns for the last 6 to 12 months
- ITR for the last 2 years
- Business registration and GST certificate
- KYC documents for all promoters
Application Process
- Prepare accurate stock and debtor statements. The CC limit is directly tied to your current assets. Accurate, up-to-date stock statements are critical. Banks will scrutinize these carefully.
- Submit a formal credit application with financial documents. Your CA can help prepare the documents in the format the bank requires, including a projected balance sheet and P&L for the current year.
- The bank conducts a pre-sanction inspection. A bank officer will visit your business premises to verify stock levels and inspect the facility. This is standard for CC facilities.
- Sanction letter and documentation. Once the limit is approved, you sign a hypothecation agreement (pledging stock and debtors as security) and any additional collateral documents.
- CC account activated. A separate CC account number is issued. You draw funds from it as needed and deposit receipts back into it to reduce the balance.
- Monthly stock statement submission. Most banks require a monthly stock statement to ensure the drawing power (amount you can draw) stays in line with actual inventory levels. Failure to submit on time can result in the bank freezing your drawing power.
CC vs OD: Which Is Right for Your Business?
- CC is better for businesses with significant inventory (traders, manufacturers, distributors). The limit is tied to the value of goods you hold.
- OD is better for service businesses or businesses with property/FD to offer as security. The limit is not tied to stock levels.
- Both are annual renewable facilities with daily interest on the utilized portion.
FAQ
What is drawing power in a CC account?
Drawing power is the maximum amount you can draw at any given time, based on the value of your current stock and debtors. Even if your sanctioned limit is Rs 50 lakh, if your stock is only worth Rs 30 lakh, your drawing power will be limited to a percentage of that (typically 75 to 80%).
Can a service business get a CC facility?
Yes, but it is harder because service businesses do not have physical inventory. Some banks allow CC against book debts alone (outstanding invoices) for service businesses. The limit will be based on your receivables position.
What happens if I do not submit the monthly stock statement?
The bank will freeze your drawing power at zero until you submit the statement. This means you cannot draw any funds from the CC account. Consistent non-submission is also noted adversely during the annual renewal of the limit.
How often is the CC limit reviewed?
CC limits are reviewed annually. During the review, the bank examines your financial performance, stock utilization patterns, and account behavior (including how regularly the balance drops to near zero, which indicates active repayment rather than evergreening).
