What Is Cash Finance?

Cash finance also named as cash credit in a common form of lending by commercial banks. A cash credit is an arrangement by which a banker allows his customer to borrow money upto a certain limit. It is a contractual advance but operated through an account. In cash finance the borrower is required to pledge security of goods produce, merchandise or tangible security.

Cash finance is a self liquidating loan. It is advanced to commercial and industrial concerns for meeting the working capital requirements of the business. In cash finance facility the bank allows the business firm to borrow upto a certain limit either in lump sum or in instalments. The business concerns draw their money according to their needs. Thus the principal advantage of cash finance account is that the borrower can operate the account within the fixed limit as and when required and can save interest by reducing the debit balance whenever he is in a position to do so. The bank charges mark up on the amount actually drawn and far the period it remains drawn. Cash finance is payable on demand. In cash finance agreement the banker usually provides a clause that if a customer does not utilize the full sanctioned he shall then have to pay markup.