Review

By its very nature the cash credit facility is a short-term facility. There is a fixed limit that is issued as cash credit, so the borrower knows the amount that is available to him/her. This limit is usually present for a year after which the figure will be reviewed. The review process is nothing but the proper check of the various documents related to the business over the period of the year. Once it is clear to the bank that the business is expanding and the repayment record is also good then a higher limit will be made available. This will introduce more funds for the business that it can use to tackle the higher requirement of funds.

The cash credit limit review is a very important process because a deteriorating financial condition of a business will immediately lead to the restriction of the use of the funds. There can also be a squeeze in the form of a lower amount available for the security that is maintained or a rise in the interest rate charged. This can raise the cost of funds as far as the business is concerned, pushing up the entire cost of activities. Hence, a proper tackling of the review process is important to ensure that the facilities are continued smoothly.

Availability of the funds is also done at a cost that is lower than that of some of the other options present in the market. This is the reason why there is also a need to set the limit higher so that the funds can be used in the best possible manner.