Learn the simple difference between Cash Credit and Term Loan so you can choose the right product.
For any startup or existing businessperson in Chennai, getting the right funding is just as essential as the right mix of spices in a Sambar. You have probably come across terms like Cash Credit (CC) and Term Loans, but what is the simple difference, and more importantly, which one fits your business better? Choosing the wrong one can put the brakes on your progress, but the right choice with proper guidance can drive your business to success.
A term loan is similar to a one-time capital injection of a fixed nature. The money is given to you in total, all at once.
For what: It is intended to be used for large, one-time investments with a definite, long-term objective only. For example, if you want to purchase new machines for your production unit in Guindy, or extend your showroom in T. Nagar, or buy a commercial property—the answer is a term loan.
Repayment: You repay the loan in fixed monthly installments (EMIs) over a specific duration (usually 1 to 5+ years) chosen at the time of borrowing.
Interest: The interest is calculated on the whole principal amount starting from the day the money is handed over to you.
A cash credit facility is a revolving credit line that provides financial support to the daily operations of the business.
Purpose: This is the most important tool for managing the working capital cycle. It can be used for the purchase of inventory, electricity bills, and wages, or for a short-term cash flow gap.
Repayment: It is very flexible. You can withdraw funds when needed, but only up to a certain limit. Importantly, you only pay interest on the money you use, not on the entire limit. When you pay back the money you have borrowed, the limit is restored.
Interest: Interest is calculated depending on the amount used only. This makes it very affordable when the needs are not the same at all times.
In a lively and cash-driven city like Chennai, where IT, automobile manufacturing, and trade are some of the sectors that are doing well, it becomes very necessary to take correct financing decisions to ensure sustained growth.
For Manufacturing MSMEs in Ambattur or Sriperumbudur: If your goal is to purchase a new CNC machine to permanently increase your production capacity, then a term loan is the most suitable option.
For Retail & Trading Businesses in Sowcarpet or Mylapore: If the demand for your inventory increases suddenly during the festive period (Pongal or Deepavali), then you can instantly fill up your stock with a cash credit facility and save on the interest once it has been sold and money has been paid back.
Ambit Crest is the leading loan processing company in Chennai and the most valuable partner for entrepreneurs. We do more than just process papers; we give personalized financial guidance.
Our local expertise enables us to: Confirm Your Requirement and give the most appropriate product as a recommendation; Guarantee Best Rates using our prominent connections with top banks and NBFCs; and Bring About a Smooth Journey ensuring that the application and disbursal processes are done without any inconvenience and are speedy.