What is a business line of credit?
A business line of credit is a pre-approved amount of funding your business can call on whenever it needs to. You draw what you need, when you need it, and pay it back as money comes in. Once repaid, those funds are available again — no new application, no waiting.
A useful way to picture it is a capital meter. The limit is the size of the tank, the drawn balance shows how much you’re using, and every repayment tops the tank back up.
How do the limit, draws and repayments fit together?
Every facility has four moving parts.
| Part | What it means | What to watch |
|---|---|---|
| Limit | The most you can have drawn at any one time | Size it to your realistic worst gap, not the biggest number on offer |
| Draw | Moving funds from the facility into your business account | Draw for a named purpose, in the amount the purpose needs |
| Repayment | Paying down the drawn balance, on schedule or early | Know where each repayment will come from before you draw |
| Redraw | Using repaid funds again | The limit refills automatically as you repay |
Your available balance is always the limit minus what you’ve drawn. With a $60,000 limit and $22,000 drawn, you can draw another $38,000.
Most facilities set a minimum repayment arrangement, and many let you repay extra whenever you like. Paying down the day a large invoice clears reduces what you’re carrying and refills the facility for the next gap.
What does a year on a line of credit look like?
Example scenario — illustrative only. A reef tour operator in Cairns earns most of its revenue between June and October, when the dry season brings visitors north. The wet season, roughly November to April, is quieter, but vessel surveys, slipping, antifouling and permanent crew wages still need paying. The business arranges a line of credit with a $70,000 limit.
| Month | What happens | Drawn | Available |
|---|---|---|---|
| December | Draws to cover crew wages through the quiet weeks | $20,000 | $50,000 |
| February | Draws again for slipping and hull maintenance | $45,000 | $25,000 |
| April | Easter and school-holiday bookings arrive; repays part | $30,000 | $40,000 |
| July | Peak-season deposits and sales; repays more | $5,000 | $65,000 |
| September | Clears the balance | $0 | $70,000 |
At its heaviest the operator used $45,000, but only for a few months, and the facility was back to zero before the next wet season began. That’s the pattern a line of credit is designed for: draw in the trough, repay in the peak.
How do lenders decide your limit?
For unsecured lines of credit, lenders mostly look at how the business actually trades rather than what it owns:
- Turnover — how much comes in each month, and how consistent it is. Seasonal swings are fine when they’re explained.
- Business bank statements — regular customer deposits, how often the balance runs close to zero, any dishonours, and existing loan or lease repayments. Many lenders view statements through a secure bank-link service rather than PDFs.
- Time trading — usually six months or more.
- Credit history — weaker credit is considered. Recent arrears get a closer look than an old default with a clear explanation.
- Tax position — regular payments to the ATO look healthy. A large overdue tax debt is worth raising early, because the ATO can disclose business tax debts of $100,000 or more that are over 90 days overdue to credit reporting bureaus when a business isn’t engaging with it.
Decisions on unsecured facilities are sometimes made the same day. Our guide to preparing for a funding conversation covers what to have ready.
What does a line of credit cost to hold?
There isn’t a single answer, and anyone quoting a rate before understanding your business is guessing. Costs can include charges on the amount drawn and, with some facilities, charges to establish the limit or keep it open. Ask for every cost in writing and compare the total cost of using the facility the way you actually would — not one headline figure.
Every facility we arrange is priced on your individual circumstances, and we look for the sharpest option available for your situation.
Line of credit, overdraft or term loan?
A line of credit and an overdraft both revolve, and both suit timing gaps. The main differences are where they sit and who provides them: an overdraft is attached to your transaction account at your bank, while a line of credit usually sits alongside that account and may come from a non-bank lender with different criteria. A term loan pays out once and is repaid on a fixed schedule, which better suits long-lived purchases. Our comparison of line of credit vs overdraft vs term loan sets the three side by side.
What should you use a line of credit for?
| Good fit | Poor fit |
|---|---|
| Wages and fixed costs through a quiet season | Covering losses month after month |
| Stock for Black Friday, Christmas or EOFY sales | A vehicle or machine you’ll use for years |
| Materials and wages while a progress claim is paid | Personal or household spending |
| BAS, PAYG instalments or super falling due before customers pay | A gap that never closes |
| A supplier’s bulk-buy or early-payment discount | Spending with no clear repayment source |
A simple test before each draw: name where the repayment will come from — a specific invoice, the next season, a stock sale. If you can’t, pause. Our guide to using business credit responsibly goes into more detail.
Which habits keep a facility working for you?
- Get back to zero at least once a year. A balance that never clears has become long-term debt, and a different structure may suit it better.
- Keep a cash buffer as well. Small surprises come out of the buffer; bigger or longer gaps come from the facility. See building a cash buffer.
- Set it up before you need it. Apply after a strong stretch, when your bank statements show the business at its best.
- Review the limit each year. As turnover grows or your seasons shift, the right limit changes.
- Keep tax money separate. Hold GST, PAYG withholding and super in their own account so a draw isn’t quietly funding them.
When is a line of credit the wrong tool?
If you need a large one-off amount, if the business is very new, or if your bank statements don’t yet reflect what the business can really do, a revolving facility may not be the answer. Businesses that own Australian property — or have a supporting party who does — can look at a property-secured top-up of $20,000 to $1m. It’s a lump sum rather than a revolving limit, and no financials or tax returns are needed for the initial assessment. Plenty of businesses use both: the lump sum for a big item, the line of credit for day-to-day swings.
How do you get one?
Start with our 60-second enquiry. It’s free and doesn’t affect your credit score. A lending specialist then contacts you to talk through your cash pattern and the limit that would genuinely help — how it works explains each step. To see how we arrange facilities of this kind, read about our business line of credit.