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What is Cash Credit?
Example of Cash Credit
Company A is a phone manufacturer and operates a factory where the company invests money to purchase raw materials to convert them into finished goods. However, the finished goods inventory is not immediately sold. The company’s capital is stuck in the form of inventory. In order for Company A to meet its expenses while waiting for their finished goods inventory to convert into cash, the company takes a cash credit loan to run their business without a shortfall
It can be easily arranged by a bank, provided that collateral security is available to be pledged and the realizable value of such is easily determined.
Withdrawals on a cash credit account can be made many times, up to the borrowing limit, and deposits of excess cash into the account lowers the burden of interest that a company faces.
Interest payments made are tax-deductible and, thus, reduce the overall tax burden on the company.
- Overdraft is extension of credit when the salary or saving account balance is zero.
- Overdraft facility depends on the customer and bank relationship.
- There are two types of overdraft- secured overdraft and unsecured overdraft.
- Overdraft loan can be taken against salary accounts, savings account, or term deposits.
- Bank overdraft allows you to meet short term funds requirements with a flexible repayment option.
- In case of loans, overdraft is the deposit of surplus funds to save interest on loans.
What is Overdraft?
Overdraft is a financial instrument to provide an extension of credit when the savings or current account balance reaches zero. Most of the banks offer an overdraft limit depending on the customer’s existing relationship with the bank. Bank also charges the interest and fees on exceeding the overdraft limit of the accounts.
Generally, there are two types of overdrafts: Secured overdrafts and unsecured overdrafts.
- Secured Overdrafts: Secured overdrafts are the overdrafts that are taken against one’s saving or current account.
- Unsecured Overdrafts: The overdrafts that are not taken against any collateral are known as unsecured overdrafts.
What Is Project Finance?
- Project finance is the funding (financing) of long-term infrastructure, industrial projects, and public services using a non-recourse or limited recourse financial structure. The debt and equity used to finance the project are paid back from the cash flow generated by the project.
- Project financing is a loan structure that relies primarily on the project’s cash flow for repayment, with the project’s assets, rights, and interests held as secondary collateral. Project finance is especially attractive to the private sector because companies can fund major projects off-balance sheet.