Combining a term loan and a cash credit limit is an interesting financial strategy, but it requires careful consideration due to their distinct characteristics:

Term Loan:

• Lump sum amount: Disbursed as a single upfront payment.
• Fixed repayment schedule: Repaid in installments over a predetermined period, typically with fixed interest rates.
• Secured or unsecured: May require collateral depending on the type and amount.
• Suitable for: Capital expenditure, large projects, long-term investments.

Cash Credit Limit:

• Flexible borrowing: Revolving credit facility, allowing withdrawals and repayments as needed within a specified limit.
• Short-term: Interest calculated only on the amount utilized, making it cost-effective for shorter borrowing needs.
• Secured or unsecured: Typically requires collateral for larger limits.
• Suitable for: Working capital, seasonal demands, unexpected expenses.

Combining the two:

• Potential benefits:
  • Access to both immediate funds and flexible credit.
  • Term loan can potentially cover long-term needs while cash credit offers flexibility for short-term fluctuations.
  • May leverage benefits of both fixed and variable interest rates depending on usage.
• Potential drawbacks:
  • Requires careful financial planning and discipline to manage repayments effectively.
  • Interest costs can be high if cash credit utilization is frequent or exceeds the limit.
  • Managing different repayment schedules and terms can be complex.

Key considerations:

• Your specific financial needs: Clearly define the reasons for requiring both a term loan and cash credit limit to ensure efficient utilization.
• Cost analysis: Compare interest rates, processing fees, and other charges associated with both options to choose the most cost-effective combination.
• Repayment capacity: Evaluate your ability to manage the combined monthly outflows from both loans without strain on your budget.
• Financial expertise: Consider seeking professional guidance from a financial advisor to tailor a suitable arrangement and navigate potential risks.

Remember: Combining a term loan and cash credit limit can be a powerful tool, but it should be approached with strategic planning and careful management to avoid financial strain and maximize benefits.