What is CC Limit (Cash Credit Limit) in Business? Meaning, Benefits, and Example
Introduction
CC Limit (Cash Credit Limit) is a type of short-term loan provided by banks to businesses for managing working capital needs. It allows businesses to borrow money up to a pre-approved limit and repay it as needed, helping them handle daily operations smoothly.
Meaning of CC Limit
A Cash Credit Limit is a form of secured loan, meaning businesses must provide collateral (like inventory, receivables, or fixed assets). The interest is charged only on the amount used, not on the entire limit.
Real-Life Example
Imagine a small manufacturing company that has a CC limit of ₹10 lakh from its bank.
- The company withdraws ₹5 lakh to purchase raw materials.
- It repays ₹3 lakh after selling some products.
- Later, it withdraws another ₹2 lakh for salaries.
- Interest is charged only on the amount used (₹4 lakh at that moment), not on the full ₹10 lakh limit.
How CC Limit Works
- Bank approves a credit limit based on business turnover and collateral.
- The business can withdraw funds as needed, up to the limit.
- Interest is charged only on the withdrawn amount, not on the full credit limit.
- The business repays and can reuse the funds, similar to an overdraft.
Benefits of CC Limit
✅ Flexible Fund Access – Businesses can withdraw money anytime within the limit.
✅ Interest on Used Amount Only – Reduces financial burden.
✅ Helps in Cash Flow Management – Ideal for covering short-term expenses.
✅ Revolving Credit – Businesses can reuse the funds after repayment.
CC Limit vs. Overdraft vs. Term Loan
| Feature | **CC Limit** | **Overdraft (OD)** | **Term Loan** |
|---|---|---|---|
| Usage | For working capital | For emergency cash needs | For long-term investments |
| Interest | Only on the used amount | Only on the used amount | On the full loan amount |
| Repayment | Flexible | Flexible | Fixed EMIs |
| Collateral | Required | May be required | Required |
Conclusion
A CC Limit (Cash Credit Limit) helps businesses manage short-term cash flow needs efficiently by offering flexible borrowing with interest charged only on the used amount. It is a great financing option for businesses needing continuous working capital support.