What Is Cash Credit? Definition, Types, Business Cash Loan

Cash credit is a special type of credit that allows you to meet unforeseen expenses. Both companies and individuals can use it. He asks his bank. There are different kinds of cash credit that adapt to different situations that may arise.

What Is Cash Credit? Definition, Types, Business Cash Loan

Cash Credit: Definition

Cash credit is a type of bank credit. It is generally a short-term loan.

It is granted by the banks to meet an unforeseen expense. In general, interest rates are quite high.

There are different types of cash loans:

• Overdraft facility

• Overdraft

• campaign credit

• Factoring

Business Cash Loan

The cash loan is primarily aimed at businesses. It allows you to face exceptional costs. You can request it directly from your bank.

For example, a company may need it if:

• A customer does not pay it, or pays it late,

• She has to make a one-time purchase,

• She suffered an unusual drop in her turnover…

Cash Credit For Individuals

The cash loan is also intended for individuals. They must also request it from their bank.

As with businesses, they use it to meet extraordinary expenses, for example:

• The purchase of a household appliance, such as a refrigerator or a washing machine,

• Paying energy bills in winter,

• The council tax…

Types Of Cash Credit

Overdraft facility

The cash facility is a type of credit where the bank pays certain expenses of the company, even if its account is in the red. This type of credit is limited in time. It can be the subject of a verbal agreement.

The bank generally grants an overdraft facility following a hard blow for the company. The agios are high.

To benefit from this type of agreement, you must have:

• Good relationship with your bank

• Healthy accounts

Overdraft

Bank overdraft is a system where the bank continues to pay the expenses of the business or the individual, even when they have no more money. In this respect, it is very similar to the overdraft facility.

However, unlike the overdraft facility, the overdraft authorization is subject to a written contract. Moreover, it is a type of credit that is not limited in time. The amount of this overdraft is negotiated on a case-by-case basis with each bank, depending on the expenses of the company or the individual.

Finally, the agios of a bank overdraft are lower than those of a cash facility. It is therefore a good way to manage cash flow mismatches over the long term.

Campaign credit

The campaign credit is a cash facility intended for companies with seasonal activity. These are, for example, companies that sell items for a particular period, such as Christmas decorations. It can also concern companies working in winter sports resorts. We can also mention the farmers.

The particularity of the campaign credit is that its duration runs over one year. Therefore, it is quite a risky credit for the bank, since to grant it, it is based only on the financial forecasts of the company. In general, only companies that can prove a stable financial history can obtain it.

Factoring

Factoring is a financing technique reserved for companies. It allows them to receive a cash advance for payments they have not yet received. This scenario happens when a company has given its customers a payment deadline, for example. 

With factoring, the company uses a factor. It is an establishment that recovers its debts. He takes care of obtaining the unpaid bills and paying him his money. This service is expensive. It is banks, their subsidiaries, or specialized companies that offer it.