Cash Credit Hypothecation (CC HYPO): Definition, Features, Procedures.

What is Cash Credit (Hypo)?

Cash Credit (CC) Hypo is one of the most favorite mode of financing. Traders, Industrialist and other borrowers avail this finance to meet their working capital requirements because it is considered as an elastic mode of borrowings. It is elastic because of the limits fluctuate according to the needs of the business. The limit of finance increase when the volume of goods increase and decrease when the volume of goods is decreasing.

CC HYPO is sometimes allowed against hypothecation of goods. In a manufacturing company, whose Stock of Raw Materials and manufacturing of goods constantly fluctuate, it is difficult for the bank to control such changes. So, the necessity arises for allowing hypothecation facilities instead of Pledge of stock under the effective control of the Bank.

CC(HYPO) is a continuous credit limit, using to meet the working capital requirement in any gainful Business or Industry Activity.

Features of CC (HYPO)

  • This is a Continuous Loan
  • Continuous drawing and adjustment is possible
  • Time limit of this loan may be one year or less. Customers may renew it with the direction of providing bank.
  • Stock in Trade remains under Customers lock and key
  • Bank applies interest.
  • Security of this loan will be hypothecation of stock in trade or stock in raw materials or Work in Process (WIP) and Finished Goods (FG).

Required Documents for availing CC (HYPO)

The intending cash credit holder should submit the following documents and being fill-up properly:

  • Stock Report
  • Trade License
  • Up to date Income Tax Clearance Certificate
  • Charge documents
  • Letter of Continuity
  • Letter of arrangement
  • DP Note (Demand Promissory Note)
  • Letter of Guarantee
  • Letters of lien
  • Limit sanctions advice
  • Non-Encumbrance Certificate
  • Valuation Report of property

Security of this Loan

Hypothecation of stock and assignment of trade debts, collateral security by way of equitable mortgage of immovable property of sufficient value will be obtained if loan amount exceeds a certain limit. Personal guarantee of one or more person will also be obtained.

Conclusion

In CC (HYPO), ownership and possession of the goods remain with the borrower although by virtue of the hypothecation agreement the bank can take possession of the goods if the borrower defaults.