.png)
CC Limit and OD — What They Are, How They Work, and Which One You Need
Two tools that India's smartest businesses use every day — but most owners have never had properly explained to them.
Walk into any bank and ask for 'a business loan' and you will be handed a brochure. But ask a seasoned business owner how they manage their cash flow — and the words Cash Credit and Overdraft come up immediately.
These are not complicated products. They are simply the most practical tools available for a business that earns money in cycles but spends money continuously. Let us understand both — plainly.
Cash Credit (CC Limit) — explained simply
Think of a CC limit like a pre-approved revolving credit line. Your bank approves a maximum limit — say ₹50 lakhs — against your business assets, typically inventory or receivables. You can draw any amount up to that limit whenever you need it. You pay interest only on what you actually use. As you repay, the limit replenishes — and you can draw again.
A textile trader who receives payment from retailers every 60 days but needs to pay his weavers every 15 days — uses a CC limit to bridge that gap. He draws ₹10 lakhs, pays his weavers, receives payment from retailers in 60 days, repays the CC, and draws again next cycle. The limit stays available. The business keeps moving.
A CC limit is not debt in the traditional sense. It is liquidity infrastructure. A business with a healthy CC limit is like a city with good roads — things move efficiently, even when the load is heavy. A business without one is like a city with no roads — everything slows down the moment volume increases.
Overdraft (OD) — explained simply
An overdraft facility works the same way as a CC limit, but is typically secured against a fixed asset — most commonly property, fixed deposits, or insurance policies rather than current assets like inventory.
If your current account shows ₹2 lakhs but you have a ₹20 lakh OD facility, you can draw up to ₹22 lakhs. The bank covers the deficit. You pay interest on the negative balance — day by day — and repay when your receipts come in.
| Cash Credit (CC) | Overdraft (OD) |
|---|---|
| Secured against current assets | Secured against fixed assets or property |
| Ideal for traders and manufacturers | Ideal for businesses with owned property |
| Sized to inventory and receivables | Sized to asset value or FD amount |
| Runs through a separate CC account | Runs through your current account |
| Reviewed annually by the bank | Can be longer tenure, more stable |
| Higher limits for high-turnover businesses | Usually easier to access if you own property |
So which one should you use?
If your business moves inventory — raw materials, stock, finished goods — a CC limit is your natural fit. If you own a property and need a reliable credit line against it, an OD against property is simpler and often cheaper. Many businesses use both — for different purposes.
CC and OD are not loans in the traditional sense — you only pay for what you use, when you use it. For any business with a cash cycle longer than its payment obligations, one of these facilities is not a luxury. It is a necessity.
Have a question about your finances?
FinAxis helps individuals and businesses across India with loans, working capital, wealth & insurance.
Talk to an expert