Working Capital Funding Basics for MSMEs: How CC, OD and Term Loans Differ

Cash Credit (CC)

A revolving working-capital limit secured against current assets — inventory and receivables. You draw what you need, pay interest only on the utilised amount, and the limit is renewed annually based on a stock statement.

Best for: Trading and manufacturing businesses with predictable inventory cycles.

Overdraft (OD)

A revolving limit against your current account, typically secured by an FD, LAP or business turnover. Cheaper than CC for service businesses because there's no stock-audit overhead.

Best for: Service businesses, professionals and asset-light MSMEs.

Term Loan

A lump-sum disbursement with a fixed EMI schedule over 12–84 months. Cheaper than CC/OD on a like-for-like basis because the lender's risk is amortised.

Best for: One-time capex — machinery, expansion, fit-outs, refinance.

The right stack

Most healthy MSMEs run a CC or OD for daily liquidity and a term loan for any one-time investment. Using a term loan for working capital strands cash; using CC for capex inflates your effective rate.

Where to read more

To size and apply for a facility, start with our working capital loan page. For product detail, see cash credit and business overdraft, or the head-to-head cash credit vs overdraft comparison. For limit assessment, documents and renewal or enhancement of an existing limit, read our detailed MSME working capital loan guide.