Business line of credit

Plenty of profitable businesses run short of cash. Not because they don’t earn enough, but because the money arrives at the wrong time. Customers pay in sixty days, suppliers want paying in fourteen, and the BAS is due somewhere in between. A business line of credit is built for exactly that gap.

How it works

The lender approves a limit, say $50,000. You don’t take it all at once. You draw what you need, when you need it, and repay when money comes in. You pay for what you’ve drawn, not the full limit. Once you repay, the funds are available to draw again.

It’s revolving, which is the main difference from a standard term loan. A term loan gives you a lump sum and a fixed schedule to pay it back. A line of credit gives you a pool to dip into and refill.

What it suits

Situation	How a line helps
Customers on long payment terms	Draw when invoices are outstanding, repay when paid
Seasonal businesses	Draw before the busy season, clear it after
Supplier discounts for early payment	Pay early, repay from sales
Unexpected costs	A buffer without a new application each time
Payroll in a slow week	Cover wages, repay when takings recover

What it doesn’t suit

A line of credit is for timing gaps, not for buying things you’ll keep for years. If you use it to buy a ute, you’ll either pay it down slowly and lose the flexibility, or pay more than a proper vehicle loan would cost. For long-lived assets, a term loan is usually the better tool. Our page on unsecured business loans covers term loans without security.

How lenders assess you

Most business lines of credit are unsecured and assessed on your bank statements. The lender is looking for regular deposits and evidence that money flows back into the account reliably. A business whose income is steady but lumpy is often a better candidate than one with smooth but thin margins. Our guide to how lenders read your business bank statements explains what they check.

Costs to ask about

• The cost on the amount drawn.
• Any fee for having the facility, even when unused.
• Fees for each drawdown.
• Annual review or renewal fees.
• Minimum repayment requirements.

Some lines have a monthly minimum, others expect the balance to be cleared within a set period. Know the rules so the line stays a buffer rather than becoming a permanent debt.

Using a line well

The businesses that get the most from a line of credit treat it as a tool with a clear rule. A common one: draw only against a specific invoice or event, and repay as soon as that money arrives. That keeps the balance moving, keeps costs down and shows the lender you’re using it as intended, which helps at review time.

Slow payers and your rights

If your business is waiting on large customers, it may be worth knowing that big businesses in Australia have to report how quickly they pay small suppliers. The Payment Times Reporting Regulator publishes that information, which can help you understand a large customer’s habits before you take on work, and plan how much of your line you might need.

An illustrative example

A Launceston printing business supplies three large customers on sixty-day terms. Paper and ink costs are due within fourteen days. The owner has a $40,000 line of credit, draws $25,000 to buy stock for a big seasonal order, and repays it in two instalments as the invoices are paid. The line sits at zero for most of the year, costing little, and is ready again for the next order. Illustrative only.

What happens at review

Most lines of credit are reviewed every year or so. The lender looks at how you’ve used the facility and how your account has behaved. A line that’s regularly drawn and repaid, with deposits holding steady, is usually renewed and sometimes increased. One that has sat fully drawn for months may be reduced or converted into a term loan with fixed repayments. Using the line the way it was designed is the simplest way to keep it.

Line of credit or overdraft?

If your bank already offers you an overdraft, it may do the same job. Lines of credit from specialist lenders tend to be easier to get without full financials, and can sometimes offer a larger limit. Overdrafts from banks are often cheaper but harder to obtain if your paperwork is behind. Compare both.

Find out what limit fits

Tell us how your income arrives, what your bills look like and how big a buffer you need. There’s no credit check to make an enquiry, we won’t scatter your details across lenders, and one real person reviews it and calls you. Describe your cash flow honestly and we’ll suggest a limit that actually works for you. Start your enquiry.