How to Calculate Cash Credit Limit?

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how to calculate CC limit.

The Cash Credit (CC) limit is a type of loan offered by banks in India to businesses for meeting their working capital needs. The calculation of the Cash Credit limit involves assessing various financial aspects of the business.

How to Calculate CC Limit?

Banks assess the working capital needs of a business, which includes factors like the operating cycle, inventory turnover, and receivable days.

• Drawing Power is a crucial factor in determining the CC limit. It is calculated based on the stock and book debts (receivables) held by the business.

• The cash credit calculation formula is; Drawing Power = (Stock Value + Book Debts) × Margin Percentage

• The margin percentage is set by the bank and represents the percentage of the stock and book debts that the bank considers as a margin.

Banks usually require a certain margin to cover potential losses. The margin percentage is set by the bank and can vary based on the industry, risk assessment, and other factors.

Banks analyze the financial statements of the business, including 

• balance sheet

• profit and loss statement

• cash flow statement

Banks also evaluate the creditworthiness of the business and its ability to repay the loan.

The availability of suitable collateral can impact the CC limit. The track record and reputation of the business, its management, and its industry performance can also influence the CC limit.

The CC limit is subject to periodic reviews and adjustments based on the changing financial health and needs of the business. Interest is charged only on the utilized portion of the CC limit.

The actual calculation can vary between banks, and they may have their own proprietary methods.

These above factors are considered for

CC limit calculation.

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I always wondered how much money one can spend using his or her credit card since there ought to be a limit of spending. None of my parents have a credit card so I had to ask my colleagues about it. I asked them about how to calculate cash credit limit and they said it is very easy. It is calculated by the bank as a percentage of sale and stock along with financial statements. To know how is CC limit calculated accurately, do know that it depends on a number of factors as well. One must look after these factors and then use the credit card.

There are a number of factors that a borrower must look upon which are:

• Age

• Income

• CIBIL Score

• Work Profile

• Financial Stability and more

What is a Cash Credit Limit Interest Calculator?

The interest of the cash credit limit is to be done by the borrower so that he or she can understand every aspect efficiently. The interest is calculated on the outstanding balance. For example, let's say the limit is Rs 100000 and you have used Rs 35000 then the interest is calculated only for 35000. If the interest rate is 10%, then the interest will be (35000*10/1200) =291.66.

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how to calculate cash credit limit.