A steady flow of funds can mean the difference between survival and growth in Howrah’s bustling industrial and trading environment. Be it a foundry, a textile unit, or a retail store, there are times when payments get delayed, while your expenses continue to rise. Cash Credit in Howrah is a crucial financial tool devised to bridge this gap. It provides businesses with a continuous supply of working capital, ensuring that operations never come to a grinding halt due to a lack of funds. By securing a Cash Credit facility, business owners in Howrah can manage their daily financial requirements with confidence and stability.
What is Cash Credit?
Cash Credit is a form of short-term business loan or working capital facility extended by banks and other financial institutions to businesses in Howrah. Unlike a regular term loan, where you get a lump-sum amount at one time, Cash Credit works similarly to a revolving line of credit. The bank assigns a specific credit limit to your business account. You can withdraw cash anytime you need it from that account, but up to that limit. This is mainly used to cover day-to-day operational expenses like purchasing raw materials, paying staff salaries, covering electricity bills, and managing inventory. It has been pretty popular in Howrah among manufacturers, traders, and distributors who have money stuck in unsold stock or unpaid invoices. The special feature of CC is that you pay interest only on the amount that you have actually used and for the number of days you used it, but not on the total sanctioned limit.
Benefits of Cash Credit in Howrah
Interest Saved on Unused Amounts. The most significant benefit for businesses in Howrah is that it is rather cost-efficient. If the limit sanctioned is more than your current need, you are not charged any interest on the idle money. You will be paying only for how much you withdraw, and this makes it a low-interest deal as compared to term loans. The Continuous Flow of Working Capital Cash Credit makes sure that when an emergency arises, you can always have access to money right now. It is a standing safety net for your business in Howrah against bounced checks and for paying your suppliers on time. Revolving Credit Facility: This is a revolving facility, which means that after you repay the amount you withdrew, that limit becomes available to you again immediately. You do not have to apply for a new loan every time you need quick cash credit for your operations in Howrah. Flexibility in Repayment Unlike a personal loan, where your EMIs are fixed per month, Cash Credit in Howrah will allow you to deposit the money whenever your customers pay you. This reduces the burden of fixed monthly outflows and aligns repayment with your business cash flow. Interest on Cash Credit is tax-deductible: For registered businesses in Howrah, this interest on a Cash Credit loan is considered an expense against your business. That can be offset against your taxable income and thus saves you money at tax filing time.
Types of Cash Credit Available in Howrah
Open Cash Credit. In this type of facility, the limit is sanctioned against the stocks (raw material, semi-finished goods, and finished goods) and receivables (unpaid invoices) of the business. This is very common for trading businesses in Howrah. The stock remains in your factory or shop, and you submit a monthly stock statement to the bank. Key Cash Credit (Pledge) This is a more secure form where the goods are kept in a godown under the bank’s lock and key. The business owner in Howrah can access the goods only after repaying a part of the loan. This is less practised today but still resorted to for certain commodities. Secured Cash Credit Against Property. Many Howrah banks offer a secured line of credit where the owner of the business pledges a residential or commercial property as collateral. It would normally permit a higher limit and a lower rate of interest since the bank has security. Clean Cash Credit or Overdraft. This type of unsecured facility is extended to those businesses in Howrah that have a very good credit track record and high turnover. No specific collateral of stock or property is taken, but the rate of interest may be relatively higher compared to secured loans. Ad-hoc Cash Credit. Occasionally, your business in Howrah may face an urgent requirement for additional money during the seasons of high demand. An ad-hoc limit represents a temporary increment in your limit to accommodate such urgent bulk orders or requirements.
Eligibility for Cash Credit in Howrah
To get qualified for a Cash Credit facility in Howrah, businesses must meet specific criteria laid down by the lenders. Although rules vary slightly between banks, the general requirements include:
Business Owner’s Age: The age of the main applicant or the owner of the firm should typically be between 25 and 65 years old.
Business Registration Status: The organisation should be registered in Howrah. It can be a Proprietorship, Partnership Firm, Limited Liability Partnership, or a Private Limited Company.
Minimum Operational Years Most lenders prefer businesses that have been operational for at least 3 years. Start-ups in Howrah may find it tough to obtain large limits without good collateral.
Banking Pattern One needs a healthy bank statement. The lenders look at your banking history to ensure that there are no frequent cheque bounces and the business maintains a decent cash flow.
GST Filing Record: The frequency for regular GST filings is typically calculated based on your reported turnover in the GST returns.
Credit History: A good credit score or CIBIL score is required. If there has been a case of default on previous loans, access to a Cash Credit loan in Howrah becomes tough.
Property Requirement For secured Cash Credit, you must be the owner of a property in Howrah or nearby areas with a clear title deed to pledge as collateral.
Documents required for availing Cash Credit in Howrah
Business Documents
Proof of Business Registration: Trade License, Shop and Establishment Act
GST Registration Certificate.
Partnership Deed or in case of a company: Memorandum of Association (MOA) and Articles of Association (AOA), whichever is applicable.
Udyam Aadhar Registration, if available.
Financial Documents
Audited Financial Statements for the last 2-3 years: Balance Sheet and Profit & Loss Account.
Last 1 to 2 years of Income Tax Returns for the business and the owners.
Projected turnover report for the coming year.
Bank account statements for the last 6 to 12 months.
KYC Documents
PAN Card of the business and all the partners/directors.
The Aadhar Card and Voter ID/Passport of the proprietors.
Address proof of the business office in Howrah.
Property Papers (If Secured)
Title Deed of the property being offered as collateral.
Latest property tax receipt.
Sanctioned building plan.
Interest Rates for Cash Credit in Howrah
Interest rates for Cash Credit vary and are not fixed for all; it depends on the risk profile of the borrower. There are various factors on which lenders decide on this rate.
Profitability and Turnover High-turnover businesses with healthy profit margins can negotiate low interest rates since the lender perceives these businesses as safe borrowers.
Bank Statement Health If your current account shows healthy transactions and high average balances, then banks in Howrah are more likely to offer competitive rates.
Property Strength If you are providing a high-value property in a prime location in Howrah as security, you can expect a lower interest rate compared to an unsecured or stock-based facility.
Credit Profile A high credit score indicates that you borrow money and pay it back responsibly. This is the single biggest factor in securing a low interest rate.
Industry Type Certain industries in Howrah might be considered “risky” by banks depending on economic trends, which could lead to slightly higher rates. Conversely, stable industries like FMCG or essential manufacturing may get better offers.
How the Limit or Loan Amount Is Calculated
Howrah banks use strict mathematical models that determine how much money they will lend to a person. Turnover Method-Nayak Committee Method For smaller businesses in Howrah, usually up to 5 Crores turnover, the banks normally calculate the limit as 20% of the projected annual turnover. This would mean if your turnover is 1 Crore, you get a limit of 20 Lakhs.
MPBF For bigger limits, the banks would check your working capital gap. They’d compute your current assets, which are your stock plus money owed to you, and subtract from this figure your current liabilities, which is money that you owe to suppliers. The bank will finance 75% of this gap. You have to bring the remaining 25% as margin:
Drawing Power Calculation Even if you have a sanctioned limit of 50 Lakhs, you can only withdraw based on your “Drawing Power.” This amount is calculated every month based on the value of stock and book debts declared by you. If your stock level drops, your ability to withdraw cash drops too. Income-based model: Some financial institutions in Howrah provide limits based purely on your net income or cash profit declared in your tax returns multiplied by a certain multiplier.
Loan or Limit Range in Howrah
The range of Cash Credit available in Howrah is large and varies from the street-side traders to the massive industrial units.
Small Businesses: In the case of Howrah, for small traders and micro-enterprises, the limits start from a few lakhs onwards. These are often treated as small emergency cash loans or working capital buffers.
Medium Enterprises: Established workshops and distributors secure limits ranging from twenty lakhs to several crores, depending on the size of the inventory.
Large Industries: Large factories in the Howrah industrial belt can get very high limits, often running into tens of crores, provided they have the balance sheet strength to support it.
Common Uses of Cash Credit in Howrah
Manufacturing Operations Howrah has a number of engineering and foundry units. They avail Cash Credit facilities to purchase iron, steel, and coal. While this is an immediate requirement for their products, the finished goods may take several months to liquidate. This facility is utilised by trading and distribution wholesalers in Howrah to stock up goods before the festive season. Since they need to purchase in bulk to avail discounts, Cash Credit provides the cash advance required to secure such deals. Retail Businesses Retail shops use these funds for managing inventory variety. If a customer desires any product, then that should be available on the shelf. Cash Credit makes sure shelves are never empty. Service-Based Businesses: Many contractors and service providers of Howrah have to bear the cost of labour and logistics for many weeks before they actually receive their money from the clients. This line of credit manages that gap. Seasonal Demand Many businesses in Howrah face seasonal spikes. For instance, at the time of festivals, a sweets manufacturer requires large capital. Cash Credit acts as quick money to handle this surge without permanently increasing their debt burden.
