With many of the advantages of a standard line of credit, cash credit is the issuance of a short term cash loan to a business. A cash loan of this type if often used to meet the expenses associated with a specific task or project, with repayment expected within a period of one year or less. Successfully receiving and paying off the loan within its terms can open the way for the business to be extended a more liberal line of credit for future use.
Cash credit works in a manner that is very similar to that of a line of credit. The difference is that it establishes a cash account with the lender institution that can be drawn upon by the debtor. This is different from a conventional loan, in that the debtor does not have to receive the entire amount of the loan at one time. It’s also different from a line of credit, as the amount of resources extended are pre-approved and the repayment schedule is the same whether the debtor is actively using the cash or not.