Because of its simplicity, adaptability, administration, and dependability, road transportation is advantageous for various forms of automobiles. In this way, compared to other modes, the percentage of cargo, truck, and passenger vehicles has been quickly increasing. If you’re a truck owner who knows the industry well and believes you can succeed not only as a driver but also as a business owner, now could be the ideal time to start your own over-the-road trucking company. It is not as simple as it appears, and a loan is frequently required. A truck owner can apply for a variety of loans, but the focus here is on cash credit loans for truck owners.
What exactly is a cash credit loan?
Cash credit is a working capital loan given to a company to help it fulfill its short-term liquidity needs. It is a short-term loan with a period of up to 12 months that can be renewed once the loan has been paid off.
Businesses can take out cash credit loans to borrow money from their bank account over their account balance as many times as they wish, up to a pre-determined borrowing limit. However, interest is only levied on the amount borrowed, not on the total amount borrowed.
Procedure for Obtaining a Cash Credit Loan
Following receipt of the cash credit application, the bank or lender evaluates the company’s current assets and liabilities and approves a cash credit limit. The larger the cash credit limit allowed, the more financially strong the company is. Businesses can take as many withdrawals as they wish from this cash credit facility. Interest is only levied on the amount borrowed, not on the allowed credit limit. The interest rate charged on withdrawals from the cash credit facility is determined by the company’s creditworthiness and collateral which are often trucks for truck owners.
What are the eligibility and documents needed to get a cash credit loan?
Eligibility for a cash credit loan
The following are some of the eligibility conditions set forth by lenders for cash credit loans:
- Most lenders demand that the business owner be at least 25 years old. This criterion, however, is likely to differ among lenders in the market. You may need to contact the firm to find out how old you must be to qualify for this loan.
- This loan can be secured with a business that has been in operation for at least three years. The amount of years a firm has been in operation is referred to as its vintage. This criterion is also likely to differ between lenders in the market. Some lenders will lend to businesses that have been in operation for less than a year.
- Some lenders want businesses to have a certain amount of cash on hand. When asking for a loan, you must provide this verification to the lender. Working capital loans are available to sole proprietorships, partnership firms, publicly traded companies, limited liability companies, and other businesses. The types of businesses that can qualify for working capital loans are limited by some lenders. You can get more information about this by contacting the lender.
- To be eligible for a cash credit loan, the borrower must furnish collateral. The majority of businesses accept real estate as collateral for working capital loans. Other assets, like inventories, work-in-progress goods, raw materials, and so on, can be used as collateral to secure this loan. about cash credit loans
To obtain a cash credit loan, the applicant must present the following list of documents:
- A chartered accountant certifies the financial statements.
- Statements from your bank account for the last six months are required.
- IT will be back for at least a year.
- Repayment history for loans (if applicable)
- Evidence of collateral
- The bank may also require other necessary documentation
On a cash credit, how is interest calculated?
The interest rate for a Cash Credit loan varies from bank to bank and is subject to change. It is based on the applicant’s creditworthiness and financial history.
Cash credit loan advantages and disadvantages
Cash Credit Loans Have Their Benefits
- A cash credit loan is a great way for a business to get money without having to liquidate its assets.
- As long as the loan value is set and collateral security is provided, the bank can readily arrange for a cash credit loan.
- You have the option of withdrawing as many times as you want from your available cash credit loan up to the withdrawal limit and depositing anytime you have extra funds to reduce your interest burden.
- Your credit cash loan interest is tax-deductible.
Cash Credit Loans Have Some Drawbacks