Working Capital Facilities · Question

Can I use my cash credit limit to repay a term loan instalment?

Short answer

Usually no, not as a regular practice. A cash credit limit is sanctioned to fund day-to-day trading needs against stock and debtors, while a term loan is repaid from profits and cash generation. Using one to pay the other is treated as diversion of funds, so lenders generally object and may react with restrictions. Occasional timing gaps are better raised with the lender first.

In more detail

Each facility is sanctioned for a stated purpose. Cash credit, called a working capital facility, is meant to finance the operating cycle. A term loan finances assets or long-term needs and expects repayment from earnings. When you pull cash from the running limit to meet a term instalment, you are converting short-term trading money into repayment of long-term debt without having generated the surplus to do so.

Why lenders react:

The drawing power depends on stock and debtors. Funds drawn for another purpose weaken the basis on which the limit was sized.
It can hide a deeper problem. If operations do not generate enough cash to meet instalments, the lender would prefer to hear it early.
A pattern of such use signals stress and may lead to a lower internal rating or closer monitoring.

If receipts are delayed and an instalment falls due, speak to the lender before the date. Options a lender may consider, subject to its policy, include a short ad hoc extension, a change in instalment dates, or a review of how the facilities are structured. If the instalments themselves seem too heavy for the business, that is a structural question worth raising during review, not a reason to borrow from one limit to feed another.

Do not shuffle money between accounts to disguise it

Moving funds through related accounts to make the use look ordinary tends to be spotted in account scrutiny and can make a lender's response firmer.

Rules differ by sanction terms, so read the end-use clause in your own letter.

Key points

Cash credit funds the trading cycle; term loan instalments should come from earnings.
Using one to pay the other is generally treated as diversion of funds.
A repeated pattern invites restrictions and a weaker internal view of the account.
Raise a genuine timing gap with the lender before the due date.
Check the end-use clause in your own sanction letter.

Who this applies to

Borrowers holding both a cash credit and a term loan with the same lender.
Owners facing a one-off cash crunch before an instalment date.
Finance heads reviewing repayment structure.

Last reviewed 3 October 2026

This answer is general information, not advice on your particular case. Terms, eligibility, and requirements change, so check the current position with the relevant institution or authority. Lalsar Holdings' financial advisory and financing work is advisory and facilitation only. Lalsar Holdings is not a lender. Sanction and disbursement of any credit facility is at the sole discretion of the partner bank, NBFC, or financial institution involved, subject to their own eligibility criteria and credit policy.