Cash Credit, Overdraft and Bank Term Loans

Cash credit is a running working capital limit that a bank gives a business against its stock and receivables; the business draws and repays as needed and pays interest only on the amount used. A term loan is a fixed loan for buying assets or expanding, repaid in instalments over several years. IMAK Advisory, an ICAI-registered CA firm in Bengaluru, helps businesses across India prepare for cash credit, overdraft and term loan applications – financial statements, CMA data in the bank's format, projections and stock statements – and manage the limits after sanction.

Most problems with bank finance come after the loan is sanctioned, not before: drawing power that falls short because stock statements are weak, an account that slips into special mention for late renewals, or a term loan sized without enough cash to repay it. This page explains how cash credit, overdraft and term loans work, the CMA report format for CC limit and the CMA data format for term loan, how to build a CMA data format in Excel for term loan and for CC limit, the documents banks ask for, the rules that protect borrowers, and how to keep the account healthy.

• Cash credit and overdraft limits: new, renewal and enhancement
• Term loans for machinery, premises, vehicles and expansion
• CMA data for term loan and CC limit applications, in Excel and PDF
• Monthly stock and book-debt statements and drawing power
• Covenant tracking, renewals and lender reporting
• Review of sanction letters and key fact statements

Cash credit is a working capital facility in which the bank sanctions a limit – say, enough to cover the business's normal stock and receivables – and the business can withdraw up to that limit or up to its drawing power, whichever is lower. Money deposited from sales reduces the outstanding balance immediately, so interest is paid only on what is actually used. Cash credit is usually secured by hypothecation of stock and book debts, meaning the goods stay with the business but the bank has a charge on them.

Cash credit suits manufacturers and traders whose working capital needs rise and fall with sales and seasons. Because the limit is linked to current assets, the bank monitors it closely through monthly or quarterly stock statements, inspections and an annual renewal.

Drawing Power Explained

Drawing power is the amount the business can actually draw on a given day. It is calculated from the latest stock and book-debt statement: eligible stock and receivables, less the margin the bank requires, less creditors in some banks' methods. If stock falls or receivables age beyond the bank's limit, drawing power falls even though the sanctioned limit stays the same. Many businesses find themselves short of cash not because the limit is too small but because drawing power is lower than expected.

The margins in the example are illustrative; each bank sets its own. The point is that accurate, timely stock statements directly decide how much money the business can use.

Interest on a cash credit account is usually calculated on the daily outstanding balance and debited to the account monthly. Because sales receipts reduce the balance as soon as they are deposited, a business that routes all collections through its cash credit account pays noticeably less interest than one that keeps receipts in a separate current account and leaves the limit fully drawn. Some banks also levy a charge on the unused part of a large limit, or expect a minimum level of use, which should be read in the sanction letter.

• Deposit all sales receipts into the cash credit account, not a separate current account
• Pay suppliers from the cash credit account so the bank sees the full cycle of business
• Avoid parking idle funds in deposits while the cash credit limit is drawn
• Check whether interest is debited monthly and whether it must be serviced from fresh deposits
• Compare the effective annual cost using the key fact statement, not only the headline rate

A well-run cash credit account – regular credits, utilisation within drawing power and timely interest – also improves the bank's internal rating of the business at renewal.

The stock statement is the most important monthly document for a cash credit borrower. It tells the bank what security backs the limit and decides drawing power.

The statement must agree with the books, the GST returns and, at the year end, the audited accounts. When we prepare stock statements, we reconcile them every month, so a stock audit or year-end comparison holds no surprises.

Many businesses need a mix: cash credit for stock and receivables, a term loan for the new machine that will create more of both, and sometimes non-fund facilities such as letters of credit or bank guarantees. Asking for each separately, without showing how they fit, leads to a mismatched package.

Overdraft Against Property or Deposits

An overdraft against a fixed deposit is quick to set up and needs little paperwork, since the deposit is the security. An overdraft against property gives a revolving limit secured by a mortgage; it is used by service businesses without much stock. Both still need the business's accounts and returns, and an overdraft against property involves legal and valuation checks of the property.

A term loan finances an asset or project with a defined cost and a repayment schedule linked to the cash the asset will generate. Banks look at the project cost, the promoter's contribution, the security, and above all whether the cash flows will cover the instalments and interest with a margin.

• Purpose: machinery, premises, vehicles, technology, expansion or takeover of an existing loan
• Promoter contribution: the share of the project the business funds itself
• Moratorium: a period at the start with no principal repayment, while the asset starts producing
• Repayment: equal instalments or a structured schedule matched to expected cash flows
• Security: the asset financed, plus collateral or guarantee cover where required
• Disbursement: usually directly to suppliers against invoices

Term loans for micro and small enterprises may be covered by credit guarantee schemes, which reduce the need for collateral, and RBI rules require banks not to take collateral for loans up to a specified amount to micro and small enterprises.

How a term loan is repaid matters as much as its size. A schedule that does not match the asset's cash flows strains the business even if the loan is affordable overall.

When we prepare CMA data, we test the repayment schedule against monthly cash flows, not only annual ratios, so that the business is not caught short in a slow quarter.

Alongside cash credit and term loans, banks offer non-fund facilities that do not involve lending money immediately. A letter of credit assures a supplier that the bank will pay against documents, which is common in imports and large purchases. A bank guarantee assures a third party – often a government department or large customer – that the bank will pay if the business fails to perform. These facilities need margin money and are counted in the bank's assessment of total exposure. They should be planned with the fund-based limits, because a business that suddenly needs a large performance guarantee for a contract may not have the margin or sanctioned limit ready.

Before sanctioning or renewing a limit, banks check credit bureau reports for the business and its promoters. For businesses, the commercial credit report shows existing loans, repayment history and any overdue amounts; for promoters and guarantors, personal credit histories are checked. Many banks also use the bureau's risk ranking for MSMEs and their own internal rating models, which combine financial ratios with conduct of the account.

• Check the business's commercial credit report and the promoters' reports before applying
• Correct any errors, such as closed loans still shown as active, with the lender and the bureau
• Clear small overdues, including credit cards in promoters' names
• Avoid applying to many lenders at once, which shows up as multiple enquiries

A clean report and a cash credit account that has run within its limits are often the strongest arguments for a better renewal.

CMA data for term loan applications focuses on repayment capacity over the life of the loan. Banks want to see that cash generated by the business – profit after tax plus depreciation and interest on the term loan – comfortably covers the instalments and interest in every year.

• Actuals for two or three years, matching audited accounts and tax returns
• Projections for the full loan period, including the new asset's effect on sales and costs
• Project cost and means of finance, backed by quotations
• Repayment schedule with moratorium, instalments and interest
• Debt service coverage ratio for each year and on average
• Fixed asset coverage and security details
• Sensitivity case with lower sales or higher costs

The CMA data for term loan should also show the extra working capital the new asset will need. A machine that doubles production also increases stock and receivables, and the cash credit limit may need to grow alongside the term loan.

CMA Data Format for Term Loan

The CMA data format for term loan follows the standard CMA forms – existing and proposed limits, operating statement, balance sheet analysis, current assets and liabilities, the working capital assessment and funds flow – with additional schedules for the project and repayment.

CMA Data Format in Excel for Term Loan

Banks usually ask for the CMA data format in Excel for term loan proposals so they can test the numbers. A good model has an assumptions sheet (capacity, utilisation, prices, costs, interest rate, depreciation), a project cost sheet, a loan schedule that calculates instalments and interest automatically, and CMA forms that link to the model. The DSCR should update when any assumption changes, and the balance sheet should balance every year. We deliver the CMA data format in Excel for term loan applications with a locked PDF of the submitted version.

The CMA report format for CC limit applications focuses on the working capital cycle: how much stock and receivables the business carries, how much credit suppliers give, and the gap the bank is being asked to fund. The key forms are the comparative statement of current assets and liabilities and the working capital assessment.

• Holding levels in days or months for raw material, work in progress, finished goods and receivables
• Credit from suppliers in days
• Projected sales for the year of the limit
• Working capital gap and the bank finance requested
• Assessment method agreed with the bank: maximum permissible bank finance, turnover method for smaller borrowers, or cash budget
• Current ratio and other liquidity measures
• Existing limits and their use over the past year

A CMA report format for CC limit renewals should compare the past year's actual holding levels with the projections. If the business claims faster stock turnover next year than it has ever achieved, the bank will ask why.

CMA Data Format in Excel for CC Limit

The CMA data format in Excel for CC limit applications should calculate holding periods from the actual figures, project them forward from stated assumptions, and compute the working capital gap and limit automatically under the bank's method. Linking the stock statement format to the same model helps, so that the monthly statements after sanction are consistent with the CMA. We provide the CMA data format in Excel for CC limit renewals and enhancements, with the PDF version for signature.

Banks use different methods to decide how large a cash credit limit should be. The method affects the figure, so it should be agreed with the bank before the CMA data is prepared.

For a growing business, the turnover method can give a quick, simple limit; for businesses with long cycles, the gap-based method may justify a larger one. We prepare the figures under the method your bank uses and, where helpful, show the comparison.

For most business loans, banks ask promoters, directors or partners to give personal guarantees, and may ask for collateral such as property or deposits. A personal guarantee means the guarantor can be pursued for the debt if the business does not pay, so it should be understood before signing. Collateral offered by family members needs their consent and clear title. Where credit guarantee cover is available, banks may reduce or waive collateral, and for loans to micro and small enterprises up to the amount specified by the RBI, collateral should not be taken.

• KYC of the business and its promoters, directors or partners
• Audited financial statements and income-tax returns for two or three years
• GST registration and returns, and bank statements for twelve months
• CMA data and, for term loans, a project report with quotations
• Existing loan sanction letters and repayment track record
• Details of collateral: title documents, valuation and encumbrance checks
• Udyam registration for micro, small and medium enterprises
• Board resolution or partners' authority to borrow

1. Discussion with the bank on the need, amount and facility type
2. Submission of the application with documents and CMA data
3. Bank's appraisal: financial analysis, credit bureau checks, site visit and valuation of security
4. Queries and clarifications
5. Credit committee decision and sanction letter
6. Acceptance of terms, documentation and creation of security
7. Registration of charge with the Registrar of Companies within 30 days for companies
8. Disbursement or activation of the limit
9. Ongoing monitoring: stock statements, reviews, renewal

Several RBI rules shape how bank loans work for businesses. Knowing them helps you compare offers and avoid disputes.

• External benchmark: new floating-rate loans to micro, small and medium enterprises are linked to an external benchmark, so the rate moves with it, with the spread fixed unless the credit profile changes
• Key fact statement: lenders must give a key fact statement for MSME term loans, showing the annual percentage rate and all charges
• Penal charges: since 1 January 2024, penalties for breaching loan terms are levied as penal charges, not added to the interest rate or capitalised
• Pre-payment: from 1 January 2026, most lenders cannot charge pre-payment penalties on floating-rate loans to micro and small enterprises
• Collateral: banks may not take collateral for loans up to a specified amount to micro and small enterprises
• Credit guarantee: CGTMSE cover for loans to micro and small enterprises was raised to ₹10 crore from 1 April 2025

We do not publish interest rates or bank charges. We do help you read the key fact statement and sanction letter so that offers can be compared on the same basis.

Banks classify loan accounts by how overdue they are. An account with any amount overdue for up to 30 days is in special mention category 0, up to 60 days category 1, and up to 90 days category 2; beyond 90 days it becomes a non-performing asset. For cash credit and overdraft accounts, the account becomes out of order if the outstanding balance stays above the sanctioned limit or drawing power continuously for 90 days, among other tests. These classifications are reported to credit bureaus and affect future borrowing.

• Submit stock statements on time and keep them consistent with the books
• Route sales receipts through the cash credit account so that it revolves
• Pay term loan instalments and interest on the due date
• Apply for renewal before the limit expires, with audited accounts ready
• Track covenants in the sanction letter, such as minimum current ratio or maximum leverage
• Inform the bank early if cash will be short, rather than letting the account slip

A stock audit, if the bank orders one, compares the stock statements with physical stock and the books. Large differences reduce drawing power and damage trust; consistent records prevent this.

When sales grow, the cash credit limit may need to be enhanced, supported by updated CMA data showing the higher working capital need. Annual renewal requires audited accounts, updated projections and a review of the account's conduct. A takeover by another bank – moving the loan for better terms or service – needs a clean track record and full documentation; the new bank will want the same CMA data and may revalue the security.

1. Understand the business, the need and the bank's expectations
2. Check the books, returns and existing loan conduct
3. Recommend the right mix of cash credit, overdraft and term loan
4. Prepare CMA data, projections and, where needed, a project report
5. Review the sanction letter and key fact statement with you
6. Set up stock statement formats and a reporting calendar
7. Prepare renewal and enhancement data each year
8. Flag covenant and drawing power issues early

We do not arrange loans, negotiate as your agent, or take commission from banks. You deal with the bank directly; we prepare and explain the numbers.

We do not publish fees. The cost depends on the facility type, the size of the business, the state of the books, whether a project report is needed and whether monthly stock statements and renewals are included. Our team shares the exact total after reviewing your requirements.

A Distributor Short of Drawing Power

A distributor's cash credit limit was adequate on paper, but drawing power was always lower because receivables older than the bank's limit were excluded. Collections were tightened, stock statements were reconciled with the books, and the next renewal supported an enhanced limit.

A Manufacturer Buying a New Line

A manufacturer applied for a term loan for new machinery. The CMA data for term loan showed debt service coverage above the bank's norm even in a weaker case, and the working capital assessment showed the extra cash credit needed, so both were sanctioned together.

A Service Firm With Property

A consulting firm with little stock needed working capital for long receivable cycles. An overdraft against its office property suited it better than cash credit, and the accounts and returns were prepared to support the application.

• Using term loan money for working capital, or the reverse
• Submitting stock statements that do not match the books
• Letting the cash credit account stay fully drawn without sales receipts
• Missing the renewal date
• Ignoring covenants in the sanction letter
• Comparing loans only on the headline rate instead of the annual percentage rate
• Not registering the charge with the Registrar of Companies on time

Seasonal Businesses

Businesses with strong seasons may need peak and non-peak limits, assessed on a cash budget, with stock statements matched to the season.

Exporters

Exporters use packing credit and post-shipment finance in rupees or foreign currency, linked to export orders and shipping documents, alongside regular limits.

Startups and Service Businesses

Businesses without stock or property may rely on credit guarantee cover, receivables-based limits or overdrafts against deposits.

Restructuring

If repayment becomes difficult, early discussion with the bank about rescheduling is better than default; any restructuring follows the bank's policy and RBI rules.

• We are not a bank, loan agent or DSA, and do not arrange loans or take commission
• We do not guarantee sanction, a limit or an interest rate
• We do not publish banks' interest rates or charges
• We do not prepare stock statements we cannot reconcile with the books
• We do not negotiate with banks on your behalf as an agent

For a small overdraft against a fixed deposit, or a vehicle loan, the bank's own forms are usually enough. Similarly, if your finance team already prepares CMA data and stock statements every year without queries from the bank, you may only need an occasional review before a large enhancement. We are most useful for cash credit and term loan applications, renewals and enhancements where CMA data, projections and monitoring matter.

1. What exactly is the money for: stock, receivables, an asset, or a mix?
2. How much working capital does the business really need, based on its cycle?
3. What will the promoters contribute?
4. What security is available?
5. Are the last two or three years audited and returns filed?
6. Is the existing account conduct clean?
7. Who will prepare stock statements every month?

Loan applications contain sensitive financial and personal details. As chartered accountants we follow ICAI's confidentiality rules. Information is used only for the work, shared only with the bank you choose, and stored securely.

• Facility type matched to the need
• Books and returns up to date and consistent
• CMA data in the bank's format, in Excel and PDF
• Project cost backed by quotations for term loans
• Security documents ready
• Key fact statement and sanction letter reviewed
• Charge registered within 30 days
• Stock statement calendar set
• Renewal date diarised

Our only office is in Whitefield, Bengaluru, where clients can meet us in person. We prepare loan papers for businesses in any state and for any bank, using documents shared online. We do not have offices outside Bengaluru.

What is cash credit?

Cash credit is a revolving working capital limit secured by stock and receivables. The business draws up to the lower of the limit and its drawing power and pays interest only on the amount used.

What is the difference between cash credit and overdraft?

Cash credit is based on stock and receivables and monitored through stock statements; an overdraft is usually based on a fixed deposit, property or the account's strength, with lighter monitoring.

What is drawing power?

The amount the business can draw on a given day, worked out from eligible stock and receivables less the bank's margins. It can be lower than the sanctioned limit.

What is a term loan?

A loan for a specific asset or project, disbursed for that purpose and repaid in instalments over several years, often after a moratorium.

What is CMA data for term loan?

CMA data for term loan is the standard set of financial forms plus project cost, means of finance, a repayment schedule and DSCR, showing that cash flows can repay the loan.

What is the CMA data format for term loan?

The six CMA forms with additional schedules for project cost, means of finance, repayment and ratios such as debt service coverage.

Can you provide a CMA data format in Excel for term loan?

Yes. We prepare a linked Excel model with assumptions, project cost, loan schedule, CMA forms and DSCR, plus a PDF for submission.

What is the CMA report format for CC limit?

It focuses on holding levels of stock and receivables, supplier credit, projected sales, the working capital gap and the bank's assessment method.

Can you provide a CMA data format in Excel for CC limit?

Yes. The model calculates holding periods, projects them, and computes the working capital gap and limit under the bank's method, linked to the stock statement format.

How is a cash credit limit calculated?

By the bank's assessment method: maximum permissible bank finance on the working capital gap, a turnover-based method for smaller borrowers, or a cash budget for seasonal businesses.

When does a cash credit account become NPA?

When it stays out of order for 90 days – for example, when the balance remains above the limit or drawing power continuously for 90 days – among other tests.

Are banks allowed to charge penal interest?

Since 1 January 2024, penalties for breaching loan terms must be levied as penal charges, not added to the interest rate or capitalised.

Can I prepay a floating-rate business loan without penalty?

From 1 January 2026, most lenders cannot charge pre-payment penalties on floating-rate loans to micro and small enterprises. Check your key fact statement.

Do you arrange bank loans?

No. We prepare and explain financial papers; you apply to the bank directly. We do not take commission from lenders.

How long does a CC limit renewal take?

Preparing renewal data usually takes about a week; the bank's processing time varies.

How much does CMA preparation for a loan cost?

We do not publish fees. The cost depends on the facility, business size and scope, and our team shares the exact total after reviewing your requirements.

Project and CMA Reports · Working Capital Management · Financial Statements and MIS · Bookkeeping and Accounting · Virtual CFO Services · Startup India and MSME

Share the facility you need, your bank, and the last three years' accounts and returns. Our team will tell you what the bank will look for and what needs to be prepared.

Contact Details

Office Address

IMAK Advisory, ITPL Main Rd, Pattandur Agrahara, Whitefield, Bengaluru, Karnataka 560066, India

Phone

+91 79798 50684 (call or WhatsApp)

Email

imakadvisoryteam@gmail.com

Sources: RBI directions on external benchmark lending, key fact statements, penal charges (circular of 18 August 2023, effective 1 January 2024), pre-payment charges (from 1 January 2026), income recognition and asset classification (special mention accounts and NPAs), and lending to MSMEs; CGTMSE scheme updates (1 April 2025). Checked 2 November 2026.