Two lending money functions of commercial banks are :
(i) Cash credit : In this type of lending a certain amount of money is placed to the credit of the trader. The trader can draw money from it as and when he wishes. Cash credit is granted up to a certain specified limit only against a surety bond, or against securities. Interest is charged only on the amount actually withdrawn by them from the account and not on the whole amount. This type of leading is very popular among businessmen in India.
(ii) Overdraft : This is a short-term arrangement and is granted to only that businessman who has a current account in the bank. Under this arrangement, a depositor is allowed to withdraw more money than he actually has in his account up to a certain specified limit. Interest is charged on the actual amount overdrawn by the depositor. Shares, debentures, fixed deposits, life insurance policy, etc. are generally offered as security for an overdraft acccount. The method of operating this account is the same as the method of operating a current account with cheque book facility.