CC Full Form and Meaning in Banking: Explained in Simple Terms

In banking, CC stands for Cash Credit, which is a type of loan facility extended by banks to their customers. CC is an essential financial instrument that helps businesses manage their cash flow efficiently. In this article, we will explore CC full form, meaning of CC in banking, its features, and how it works.

What is CC in banking?

CC stands for Cash Credit, which is a type of loan facility extended by banks to their customers. It is a short-term loan, usually taken for a period of 12 months or less, and is intended to meet the working capital requirements of businesses. CC is a revolving credit facility, which means that the borrower can draw and repay funds within the limit as and when required.

How does CC work?

CC works like an overdraft facility, where the borrower can withdraw funds up to the sanctioned limit. The interest is charged only on the amount withdrawn, and not on the entire sanctioned limit. The borrower can withdraw and repay funds multiple times during the tenure of the CC, as per their cash flow requirements.

Features of CC

• CC is a short-term loan facility extended by banks to their customers.
• It is a revolving credit facility, which means that the borrower can draw and repay funds as per their cash flow requirements.
• The interest is charged only on the amount withdrawn, and not on the entire sanctioned limit.
• CC is a secured loan, where the bank takes collateral as security against the loan amount.

Advantages of CC

• CC provides businesses with a flexible and convenient way to manage their working capital requirements.
• The interest rates on CC are lower than those on unsecured loans, such as personal loans and credit cards.
• The borrower can withdraw and repay funds as per their cash flow requirements, without any prepayment penalty.

Disadvantages of CC

• CC is a secured loan, which means that the borrower has to pledge collateral as security against the loan amount.
• The interest rates on CC may be higher than those on other secured loans, such as term loans and mortgages.
• The borrower has to maintain a good credit score and a healthy financial record to be eligible for CC.

Eligibility for CC

To be eligible for CC, the borrower has to meet the following criteria:

• The borrower should be a business entity, such as a partnership firm, sole proprietorship, or private limited company.
• The borrower should have a healthy financial record, with a good credit score and a positive net worth.
• The borrower should have a regular source of income and a satisfactory cash flow position.

Documents required for CC

The following documents are required to apply for CC:

• KYC documents of the borrower, such as PAN card, Aadhar card, and passport.
• Proof of address, such as a utility bill or a rental agreement.
• Bank statements of the borrower for the last 6 months.
• Income tax returns of the borrower for the last 2 years.
• Audited financial statements of the borrower for the last 2 years.

Types of CC

There are two types of CC:

• Fund-based CC: In this type of CC, the borrower can withdraw funds up to the sanctioned limit.
• Non-fund-based CC is a type of credit facility where the bank provides a guarantee or letter of credit to the borrower on their behalf. The borrower can use this facility to secure contracts and transactions with third parties.

Difference between CC and OD

CC and OD (Overdraft) are two similar loan facilities offered by banks. However, there are a few differences between them:

• CC is a short-term loan, while OD can be both short-term and long-term.
• The interest on CC is charged on the amount withdrawn, while the interest on OD is charged on the entire sanctioned limit.
• CC is a secured loan, while OD can be both secured and unsecured.

Interest rates on CC

The interest rates on CC may vary from bank to bank, depending on the borrower’s credit score and financial history. The interest rates may also depend on the type of collateral provided by the borrower. Typically, the interest rates on CC range from 9% to 16% per annum.

Repayment of CC

The borrower can repay the CC in full or in part, as per their cash flow requirements. The repayment can be made through cash or cheque, or through electronic transfer. The repayment may also be done in instalments, as per the repayment schedule agreed upon between the bank and the borrower.

How to apply for CC?

To apply for CC, the borrower has to follow the following steps:

• Approach the bank with a detailed project report and a cash flow projection.
• Submit the required documents, such as KYC documents, bank statements, and audited financial statements.
• Provide collateral as security against the loan amount.
• Wait for the bank’s approval and sanction of the CC.

CC vs. Term Loan

CC and Term Loan are two different loan facilities offered by banks. Here are the differences between them:

• CC is a short-term loan, while Term Loan is a long-term loan.
• CC is a revolving credit facility, while Term Loan is a fixed credit facility.
• The interest rates on CC are lower than those on Term Loan, as CC is a secured loan.

CC vs. Letter of Credit

CC and Letter of Credit are two different credit facilities offered by banks. Here are the differences between them:

• CC is a loan facility, while Letter of Credit is a guarantee facility.
• CC is a revolving credit facility, while Letter of Credit is a one-time credit facility.
• The borrower has to provide collateral as security for CC, while no collateral is required for Letter of Credit.

FAQs on Cash Credit

Conclusion

CC is an essential loan facility that helps businesses manage their working capital requirements efficiently. It provides businesses with a flexible and convenient way to manage their cash flow and meet their financial obligations.

However, it is important to understand the features, advantages, and disadvantages of CC before applying for it.