The abbreviation "CCL bank" is likely a misinterpretation or a misunderstanding of financial terminology. CCL usually stands for Cash Credit Limit, which is not a bank, but rather a type of short-term working capital loan offered by banks and other financial institutions. It's important to clarify this point: CCL is a facility, not an institution.
Here's a breakdown of what a Cash Credit Limit is:
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Definition: A Cash Credit Limit (CCL) is a short-term credit facility extended by banks to businesses, allowing them to withdraw funds up to a specified limit. This limit is determined by factors such as the borrower's creditworthiness, business needs, and the value of the collateral offered.
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Purpose: CCL is primarily used to meet the working capital requirements of a business, such as purchasing raw materials, paying salaries, and covering other day-to-day expenses.
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How it Works:
- The bank sanctions a credit limit based on the borrower's assessment.
- The borrower can withdraw funds from the account up to the approved limit.
- Interest is charged only on the amount withdrawn and for the period it remains outstanding.
- The borrower can repay the withdrawn amount at any time, and the available credit limit is replenished.
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Key Features:
- Revolving Credit: CCL is a revolving credit facility, which means the borrower can withdraw and repay funds as needed, as long as they stay within the approved limit.
- Interest Charges: Interest is charged only on the utilized amount, not on the entire sanctioned limit.
- Collateral Required: Banks typically require collateral, such as inventory, accounts receivable, or other assets, to secure the CCL.
- Regular Review: Banks periodically review the CCL limit based on the borrower's financial performance and business needs.
Therefore, while "CCL bank" is not an actual bank, CCL (Cash Credit Limit) is a very important financial tool provided by banks to businesses to manage their short-term financial needs.
