Business line of credit

Many businesses don’t need one big lump of money. They need a buffer that rises and falls with the season, the customer payment cycle or the timing of big supplier bills. A business line of credit is built for exactly that.

How a line of credit works

The lender approves a limit, say $100,000. You draw what you need, when you need it. As customers pay, you repay the line and the available balance goes back up. Interest is generally charged only on the amount drawn, though some lines also carry fees on the limit.

Day	Action	Balance drawn
1	Draw for wages	$40,000
10	Draw for supplier bill	$75,000
25	Customer payments repay part	$30,000
40	Big invoice paid	$0

The same limit can be used again and again, as long as the facility stays in good standing.

Unsecured and property-backed lines

Unsecured lines are assessed on the business’s bank statements and turnover, much like an unsecured business loan. Limits are typically $5,000 to $500,000. Directors usually guarantee, and some lenders register a security interest over business assets.

Property-backed lines use a mortgage over property and can offer much larger limits. They’re often cheaper per dollar drawn. Some private lenders also offer facilities with staged draws against property, which work in a similar way for projects with planned costs.

What a line of credit suits

• seasonal businesses with busy and quiet periods
• businesses that pay suppliers before customers pay them
• trades and contractors with progress payment cycles
• covering wages in a slow week
• taking advantage of early-payment discounts from suppliers

What it doesn’t suit

• buying premises, equipment or another business, which suits a term loan better
• covering ongoing losses, which a line can disguise until it’s fully drawn
• long-term needs, since limits are reviewed and can be reduced

Watch for limit creep

The biggest risk with a line of credit is that it stops going back to zero. If the drawn balance creeps up month after month, the line has become a long-term loan in disguise. That’s a sign to review cash flow, pricing or costs with your accountant, and possibly to replace part of the line with a term loan.

A simple rule: the line should be fully, or nearly fully, repaid at least once every few months.

Fees to understand

Lines of credit can carry several fees, so compare the full picture:

• establishment fee
• monthly or annual account fee
• line fee charged on the whole limit, drawn or not
• drawdown fees on each draw
• interest on the drawn balance

A line with a low headline price but a large fee on the limit can cost more than expected if you rarely draw it.

Using a line alongside a secured loan

A common structure pairs a property-secured loan for a large one-off need with a smaller unsecured line for day-to-day fluctuations. The secured loan clears the big item at lower cost. The line handles the rhythm of the business. Our business loan solutions page explains how these combinations work.

A worked example

A Gold Coast landscaping company had steady annual revenue but sharp seasonal swings, with big spring projects and quiet winter months. A $120,000 unsecured line let it buy plants and materials ahead of spring and pay crews before clients settled invoices. Through summer, the balance came down to zero. In winter it sat unused, costing only a small monthly fee.

What lenders look at for a line

Because a line can be drawn at any time, lenders want confidence the business can repay it repeatedly, not just once. Expect them to review:

• average monthly turnover and how much it swings between months
• how long the business has been trading
• existing debts with regular repayments
• account conduct, including dishonours and overdrawn days
• the industry, since some sectors are seen as more volatile

A business with steady deposits and a clean account history will usually receive a higher limit than one with the same annual revenue arriving in a few large, irregular payments. If your revenue is seasonal, explain the pattern, because a lender who understands it is less likely to read a quiet month as a warning sign.

Ask whether a line fits

Tell us how your cash flow moves through the year and what you’re trying to smooth. We’ll tell you whether a line, a term loan or a mix suits best. There’s no credit check when you first enquire, and your file isn’t broadcast to lenders.

Accurate turnover figures help us size the limit properly. Check your eligibility, or read about unsecured business loans and then start your enquiry.