Documentation required

The need for documentation can be broken into two parts for the entire cash credit process. The first is the requirements for the opening of the account and the second which refers to the security that will have to be provided in support of the entire borrowing.

The opening of a cash credit account will require the necessary information like the details of the entity or the business, documentation like the partnership deed or the articles of association, the permanent account number (PAN) and so on. These are likely to be the common requirements that arise while opening a bank account. Though the exact details about the documentation will vary across banks, some basic documents will have to be kept ready.

The second part consists of the security of the entire borrowing. The bank will keep some security when the cash credit limit is sanctioned, and this will be divided into primary and secondary security. The primary security is nothing but the right over the receivables and stock that can be used by the bank to recover their money in case the loan is not paid back. These two areas are the most liquid and represent a route for the bank to recover any of their unpaid dues and hence are made the primary security.

The secondary security is the personal guarantor who will stand behind the transaction and pay in case there is a default and the recovery of some amount is not possible from the existing position. This will call for filling in the necessary approvals and authority by the person standing as a guarantor. In many cases, banks will also ask for a third party guarantee so that they have another route to recover their money.