As a business owner in India, you know that growth needs fuel. That fuel is often capital. But when your cash flow hits a snag or an opportunity knocks, which financial tool do you reach for? Is it a Cash Credit (CC) limit, an Overdraft (OD) facility, or a traditional Term Business Loan?

Choosing wrong can mean paying unnecessary interest or struggling with inflexible repayments. This guide cuts through the confusion. We’ll explain each option in simple terms, compare them directly, and give you a clear framework to choose the best financing for your business needs in 2025.

Let’s Compare Head-to-Head: 

Before we dive deep, here’s a clear snapshot of how these three popular business credit options stack up against each other.

Now Let’s Understanding Cash Credit (CC)

What is a Cash Credit Loan?

A Cash Credit (CC) account is a revolving, secured credit facility designed primarily to meet the day-to-day working capital needs of a business. Think of it as a dedicated credit account for your operational expenses. The bank sanctions a limit based on your stock and debtors, and you can draw funds as needed to pay suppliers, manage inventory, or cover salaries.

How Does It Work & Who is it For?

• Mechanics: You pledge current business assets like inventory, raw materials, or receivables as collateral. Interest (typically between 10% to 18% p.a.) is charged only on the daily outstanding balance.

• Ideal User: This facility is a staple for manufacturers, traders, and distributors whose business involves a constant cycle of buying stock, selling it, and waiting for payments. It’s perfect when your funding needs are recurring but the exact amount varies daily.

Demystifying the Overdraft (OD) Facility

What is an Overdraft Loan?

An Overdraft (OD) is a flexible credit line attached to your existing current or savings account. It allows you to withdraw money beyond your account balance, up to a pre-approved limit, effectively preventing cheque bounce and managing shortfalls.

Types, Rates, and Best Uses

ODs come in various forms, impacting their interest rates and eligibility:

• Secured OD: Backed by collateral like a Fixed Deposit (FD) or property. Offers lower interest rates (e.g., SBI charges ~1% above the FD rate).

• Unsecured OD: Granted based on your income or business turnover. Has higher rates, generally between 10% – 17% for personal OD and 9.5% – 14.5% for business OD.

• When to Use It: Choose an OD for unpredictable expenses, to cover a temporary cash flow gap while waiting for a payment, or for a short-term business opportunity. It’s your financial safety net.

Easy to Understand Business Loan

What is a Business Loan?

A business loan provides a fixed lump sum of capital for a specific, one-time business purpose. It’s repaid in equated monthly instalments (EMIs) over a fixed tenure.

Purpose, Terms, and Application

• Common Uses: Launching a startup, purchasing commercial property, buying expensive machinery, or funding a major expansion project.

• Key Terms: Interest rates vary widely. Secured loans start as low as 10% p.a., while unsecured loans can range from 12% to 25% p.a.. Tenures can extend up to 10-15 years for large loans.

• The Process: Approval hinges on a strong business plan, financial statements, and credit history. For MSMEs, government-backed schemes like CGTMSE can facilitate collateral-free loans. The digital process is now swift, with some lenders promising approvals in principle within minutes.

The Decision Guide: Which One Should You Choose?

Use this simple flowchart to match your need with the right product: