Cash credit and overdraft both let you draw money you don't have — but they're secured differently, assessed differently and suited to different needs. Here's how to tell them apart.
Cash credit is a revolving limit designed specifically for working capital. You draw against your stock and receivables, and your usable amount — the drawing power — is recalculated from monthly stock statements. The limit is assessed through CMA data and reviewed at annual renewal.
An overdraft lets you draw beyond your current-account balance up to a sanctioned limit. It's more general-purpose and is often secured against property, fixed deposits or other collateral rather than current assets. A large business OD may still require CMA data, but a small OD against a deposit is usually assessed on the security alone.
| Feature | Cash Credit | Overdraft |
|---|---|---|
| Purpose | Working capital, specifically | General short-term needs |
| Security | Stock & receivables | Often property / deposits |
| Drawing power | From monthly stock statements | Usually the full sanctioned limit |
| Assessment | CMA / operating cycle | Security value, or CMA for large ODs |
| Interest | On amount utilised | On amount utilised |
| Renewal | Typically annual | Annual, or drop-line schedule |
If your need is funding an operating cycle — stock and receivables — cash credit is usually the right, and often larger, facility. If you want flexible short-term liquidity and have property or a deposit to secure it, an overdraft can be simpler to obtain. Many businesses use both. The right choice depends on your security, the size needed and how the funds will be used — which is worth mapping before you approach the bank.
Cash credit is a dedicated working-capital line secured against stock and receivables, with drawing power set by monthly stock statements. An overdraft is more general-purpose and often secured against property or deposits.
Yes — in both, interest is charged only on the amount actually utilised, not the full sanctioned limit.
A large business OD, or one funding working capital, usually does. A small OD against a fixed deposit or property is often assessed on the security alone.
Yes — many businesses use cash credit for the operating cycle and an overdraft for flexible short-term needs.
Tell us your security and how you'll use the funds, and we'll advise whether cash credit, an overdraft, or both fit — and prepare the CMA to secure it. The first assessment is free.
Related reading: Working Capital Loan Guide · CMA Data for Cash Credit · CMA Data for an OD Limit · Term Loan vs Working Capital · Business Loan Without Collateral
CA Nikhil Gupta advises the right working-capital facility for your business and prepares the CMA to secure the limit. Free assessment, no upfront fee.
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