Cash credit and overdraft facility: what they are and how the limit works
An overdraft facility lets a business draw more than the balance in its current account, up to a sanctioned limit, and pay interest only on the amount used. Cash credit is a similar limit secured by stock and receivables, where drawings are capped by drawing power worked out from a current stock statement. Both suit a business with regular stock and receivable cycles.
Capnix is not a lender and never lends its own capital. The lender decides approval, limit, rate and terms. We get your file loan ready, share it with lenders on our panel only after you give consent, and run the lender application. Getting your loan through us costs you nothing: no joining fee, no file charge, no cut of your limit.
- Loan
- Overdraft / Cash Credit
- Decided by
- The lender
- Cost to you
- ₹0
- Last checked
The facts that matter
| Fact | What it means | Source |
|---|---|---|
| How a cash credit limit is sized | For micro and small enterprise borrowers with limits up to ₹5,00,00,000, the limit is computed as at least 20% of projected annual turnover. |
PIB release on working capital for micro and small units, 23-Jul-2019 Checked 02-Oct-2026 |
| Drawing power | You can draw only up to drawing power, worked out from a stock statement that is current. A statement older than three months makes drawings irregular. | RBI master circular on income recognition and asset classification Checked 02-Oct-2026 |
| Irregular drawings | If drawings stay irregular for 90 continuous days, the account becomes a non-performing asset. | RBI master circular on income recognition and asset classification Checked 02-Oct-2026 |
| Closing the limit | No pre-payment charge if you tell the lender in time that you will not renew a cash credit or overdraft and the facility closes on its due date. |
RBI pre-payment directions, 02-Jul-2025 Checked 02-Oct-2026 |
| Penal charges | A penalty is a penal charge, not extra interest, and it cannot be added to the loan to earn more interest. |
RBI penal charges circular, 18-Aug-2023 Checked 02-Oct-2026 |
Cash credit or overdraft: how they differ
A cash credit account is a limit tied to your stock and receivables. An overdraft is a limit on your current account. Both let you draw, repay and draw again within the limit, and both charge interest on the amount drawn.
The rows below describe usual lender practice, not rules. Each lender sets its own terms.
| Item | Cash credit | Overdraft |
|---|---|---|
| What usually secures it | Stock and receivables | Property, deposits or a strong banking record |
| How the limit is set | A share of projected turnover and your current assets | The value of the security and your banking record |
| Drawing power | Applies, linked to a stock statement | Applies if the lender links the limit to stock or receivables |
| Typical user | A trader or manufacturer with stock and debtors | A business with a steady current account and security to offer |
How your cash credit limit is decided
For micro and small enterprise borrowers with limits up to ₹5,00,00,000, one common method computes the limit as at least 20% of projected annual turnover. This is how lenders usually calculate it, not a rule that fixes your limit.
For example, a projected turnover of ₹2,00,00,000 gives a limit of at least ₹40,00,000 under the method. The lender then checks stock, receivables, banking record and security.
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Drawing power, explained
Drawing power is the most you can draw at a point in time. Banks commonly work it out as eligible stock plus eligible receivables, less trade creditors, less a margin the lender sets, and cap it at the sanctioned limit. The numbers below are an illustration, and the margin is the lender's call.
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| Step | Illustration |
|---|---|
| Stock | ₹12,00,000 |
| Receivables (debtors) | ₹8,00,000 |
| Less trade creditors | ₹5,00,000 |
| Base | ₹15,00,000 |
| Less a margin, if the lender sets 25% | ₹3,75,000 |
| Drawing power | ₹11,25,000, capped at the sanctioned limit |
Overdraft against property
An overdraft against property is a limit secured by a property you own. The lender values the property and sets the limit. It sits closer to a secured loan than to a stock-linked cash credit, and the property is at risk if you default.
Scheme-linked cash credit and overdraft
Two government-linked routes use these structures.
| Route | How it works | Source |
|---|---|---|
| Mudra Card | A RuPay debit card that gives a Mudra borrower a working capital line as cash credit or overdraft. You draw at an ATM or pay at a POS machine and repay when you have surplus. | Mudra FAQ Checked 02-Oct-2026 |
| CGTMSE guarantee | Working capital to micro and small enterprises can be covered in blocks of five years that can be renewed. The lender applies for cover, not you. | CGTMSE scheme document, updated 01-Apr-2026 Checked 02-Oct-2026 |
What lenders typically publish
Rate cards the lenders publish themselves, read on the date shown.
Published rate cards, as of 02-Oct-2026
| Lender | Rate a year | What else the page says | Source |
|---|---|---|---|
| Bank of Baroda (public sector bank), loans up to ₹25,00,000 | Micro 8.15% to 10.50%, small 10.15% to 10.65%, medium 10.85% | Benchmark rate of 7.90% plus a strategic premium and a spread by loan size. | Bank of Baroda MSME loan rates Checked 02-Oct-2026 |
| Bank of Baroda, above ₹25,00,000 up to ₹7,50,00,000 | CMR 1: 8.20% to 9.65%. CMR 6: 10.35% to 15.60% | Priced by CIBIL MSME Rank (CMR) and security cover. | Bank of Baroda MSME loan rates Checked 02-Oct-2026 |
These are the bank's published MSME loan rates, not rates for cash credit alone. They are not offers, and your rate is set by the lender.
Fees and charges to expect
| Charge | What to expect | Source |
|---|---|---|
| Interest | Charged on the amount you draw, not on the whole limit. | |
| Annual review | One private bank charges up to 2% of the renewal limit plus taxes when a working capital limit is renewed. | Kotak Mahindra Bank business loan fees and charges Checked 02-Oct-2026 |
| Commitment charge | That bank also charges ₹5.50 a day per ₹1,00,000 of unused limit when average quarterly use is below 60%. | Kotak Mahindra Bank business loan fees and charges Checked 02-Oct-2026 |
| Penal charges | A charge, not extra interest, and never compounded. |
RBI penal charges circular, 18-Aug-2023 Checked 02-Oct-2026 |
| Anything else | A fee that is missing from the Key Facts Statement cannot be charged unless you have explicitly agreed to it. |
RBI Key Facts Statement circular, 15-Apr-2024 Checked 02-Oct-2026 |
Worked example: ₹6,00,000 used for 30 days
A business has a limit of ₹10,00,000 and uses ₹6,00,000 of it for 30 days. The example rate is 10.5% a year, the top of the range one public sector bank publishes for micro enterprise loans up to ₹25,00,000. It is an example, not an offer.
| Item | On the amount used | On the full limit |
|---|---|---|
| Amount interest is charged on | ₹6,00,000 | ₹10,00,000 |
| Interest for 30 days at 10.5% a year | ₹5,178 | ₹8,630 |
Interest = amount x rate x days / 365. Many lenders charge on the daily balance, so the exact figure depends on when you draw and repay.
Source: Bank of Baroda MSME loan rates, checked 02-Oct-2026.
Who it suits and who it does not
A strong fit if
- Your business has regular stock or receivable cycles
- You need repeat access to funds rather than a single loan
- You want a limit that moves with how the business runs
Not a fit if
- You need a lump sum for a one-time purchase (see a term loan or equipment financing)
- You cannot send stock statements on time, because late statements cut your drawing power
Documents and renewal
One bank's own guide lists the records below. A cash credit lender usually adds a stock statement and a debtors list, and asks for them again when the limit is renewed.
- Six to twelve months of bank statements
- GST returns for the past 6 to 12 months
- Income tax returns and financial statements for 1 to 3 years
- A current stock statement and a list of debtors
- Business proof and KYC
Source: Bank of Baroda guide to business loan documents, 29-Apr-2026, checked 02-Oct-2026.
Business loan documents checklistHow Capnix fits
- Start with your free Capnix score. It reads your bank statements for inflows, balances and bounced payments, the record a cash credit lender checks first.
- Your file goes to a lender or a Lender Partner only after you give consent, and you can withdraw that consent in your Capnix account.
- The lender pays Capnix a fee once your limit is disbursed. We never add it to your cost.
More than a loan. A team that gets you there
A facility matched to your operating cycle
We read how your stock, receivables and bank flows move, then approach lenders whose limit structure fits recurring working capital needs.
Flexibility without applying again and again
We help you pursue a facility you can draw and repay as the cycle moves, so you do not apply every time cash gets tight.
Where this helps
- Cover recurring working capital gaps
- Pay suppliers before customer collections arrive
- Support stock and receivable-led cash cycles
- Keep funds available through seasonal demand changes
What happens after you start
We work out your Capnix score first, then work the lender applications with you until the money is disbursed.
See how it worksLoan products, rates, and eligibility are determined by the lenders on our panel. Capnix is not a lender and does not lend its own capital. We run your loan journey end to end.
Have a question?
Find answers here
Whether you are scaling up, smoothing cash flow, or buying new equipment, we take your file to the right lender and stay with it through to disbursal.
Read your operating cycle. Matched to the right lender
Cash credit works when the facility tracks how your stock, receivables, and bank flows actually move. We read that cycle, then build the case for a limit that fits recurring working-capital needs.
From there we approach lenders comfortable with your cash cycle and facility type, so the limit is structured around real business movement, and getting your loan costs you nothing.
Real people,
start to disbursal.
No hand-offs and no generic replies. A dedicated team
works the lenders while you keep running your business.