Question

What is cash credit?​

Answer 1

A Cash Credit (CC) is a short-term source of financing for a company. In other words, a cash credit is a short-term loan extended to a company by a bank. It enables a company to withdraw money from a bank account without keeping a credit balance. The account is limited to only borrowing up to the borrowing limit. Also, interest is charged on the amount borrowed and not the borrowing limit. To learn more, check out CFI’s Credit Analyst Certification program.

Explanation:-

Advantages of Cash Credit

1. Source of working capital financing

2. Easy arrangement

3. Flexibility

4. Tax-deductible

5. Interest charged

Disadvantages

1. High rate of interest

2. Minimum commitment charges

3. Difficulty in securing

4. Temporary source of finance

Other Resources

Thank you for reading CFI’s explanation of Cash Credit. CFI offers the Commercial Banking & Credit Analyst (CBCA)™ program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful:

Bullet Loan

Cost of Debt

PIK Loan

Revolving Debt

Answer 2

Explanation:

A cash credit (CC) is a short term source of financing for a company. In other words, a cash credit is a short-term loan. It enables a company to withdraw money from a bank account without keeping a credit balance. The account is limited to only borrowing up to the borrowing limit.

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