Cash Credit vs Overdraft
Both are revolving credit lines that fund day-to-day working capital, but they differ in security, limits, and how the limit is set. Here's how to choose.
Quick verdict
Cash credit is a limit set against inventory and receivables, ideal for trading and manufacturing businesses with stock.
Overdraft lets you draw beyond your current account balance, often against fixed deposits, property, or as a clean limit.
Choose cash credit if your working capital is tied up in stock, and overdraft for short, flexible cash gaps.
The basics
Cash Credit (CC)
A revolving working capital facility where a bank sets a borrowing limit against your inventory and receivables, calculated through drawing power. You draw and repay as needed, paying interest only on the outstanding amount, typically at 10-16% p.a.
Overdraft (OD)
A facility that lets you withdraw more than your current account balance up to a sanctioned limit. It can be secured against fixed deposits, property, or shares, or offered as a clean limit, with interest charged only on the utilised amount.
Cash credit vs overdraft at a glance
| Factor | Cash Credit | Overdraft |
|---|---|---|
| Basis of limit | Drawing power on stock and receivables | Value of collateral or account relationship |
| Typical security | Hypothecation of inventory and debtors | FD, property, shares, or clean limit |
| Account type | Separate CC loan account | Linked to your current account |
| Interest rate | Typically 10-16% p.a. on utilised amount | Typically 11-18% p.a. on utilised amount |
| Best suited for | Trading and manufacturing with stock | Short-term cash flow gaps |
| Limit review | Reviewed annually against stock statements | Reviewed on relationship or collateral value |
| Renewal | Renewed yearly, subject to audit | Renewed periodically or evergreen |
| Flexibility | Tied to current asset levels | Highly flexible up to sanctioned limit |
| Documentation | Stock statements, drawing power reports | Collateral papers or account history |
What a cash credit sanction looks like
An anonymised sample cash credit sanction for a Pune-based auto components trader, with each term explained in plain English.
| Term | Sample value | What it means in plain English |
|---|---|---|
| Facility type | Cash credit (revolving) | A limit you draw and repay repeatedly, not a lump-sum loan. |
| Sanctioned limit | ₹1.5 Cr | The maximum outstanding you can carry at any time. |
| Drawing power | 75% of stock + receivables | Your usable limit rises and falls with your current assets. |
| Interest rate | 13% p.a. | Charged only on the daily outstanding balance, not the full limit. |
| Security | Hypothecation of inventory and debtors | A charge over your stock and unpaid invoices, with no equity pledged. |
| Margin | 25% on stock | The portion of stock value you fund yourself, the bank funds the rest. |
| Review | Annual, on stock statements | The limit is reassessed each year against fresh audited figures. |
| Processing fee | 0.5% of limit | A one-time fee charged at sanction and renewal. |
Anonymised, indicative sample. Actual terms depend on your revenue, margins, and lender.
When to choose each
Choose cash credit when
- Your working capital is locked in inventory and receivables.
- You run a trading or manufacturing business with steady stock.
- You want a larger revolving limit tied to your asset base.
- You can produce regular stock and debtor statements.
- You need to fund seasonal purchase cycles.
Choose overdraft when
- You face short, unpredictable cash flow gaps.
- You have fixed deposits or property to pledge as collateral.
- You want a flexible limit linked to your current account.
- Your business is service-led with limited physical stock.
- You value simplicity over a large asset-backed limit.
How Recur Club helps you secure the right working capital line
Cash credit and overdraft limits vary widely by lender, collateral, and sector. Recur Club brings 125+ banks and NBFCs onto one AI-native platform, so you can compare revolving facilities and working capital loans side by side instead of negotiating with one branch at a time.
Once you connect your financial data, you receive indicative offers within 48 hours, with clear terms on limits, interest, and security. That means funding your purchase and receivables cycle without giving up any equity.
We've deployed over ₹3,000 Cr to 2,000+ companies across India. Our team helps you decide whether a revolving line, a term loan, or invoice discounting best fits your working capital needs.
Frequently Asked Questions
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