Quick answer
A business line of credit is an approved limit you can draw on when you need it and repay when cash comes in, paying interest only on what you've used. It suits seasonal trade, slow-paying customers, stock buys and payroll peaks. Many alternative lenders approve lines of credit on six to twelve months of bank statements, and some will consider bad credit or a bank decline case by case.
Key points
- Draw, repay and draw again, up to your approved limit.
- You pay for what you use, not the whole limit, though some lines carry fees.
- Usually assessed on bank statement turnover, typically $5,000 to $500,000 unsecured.
- Larger limits are possible with property security.
- Unsecured limits
- Typically $5k – $500k
- Secured limits
- Up to $5m
- Assessment
- 6 – 12 months statements
- Credit check to enquire
- None
If there’s one product we recommend more than any other for businesses with difficult or lumpy cash flow, it’s a line of credit. It’s a pool of money you can dip into when the account runs low, and pay back when customers pay you. It doesn’t fix a business that loses money, but for the far more common problem of money arriving later than it leaves, it’s often the simplest answer.
How a business line of credit works
- A lender approves a limit, say $100,000, based on your turnover and file.
- You draw what you need, when you need it, usually into your business bank account.
- You pay interest on the amount you’ve drawn, not on the whole limit.
- As you repay, the available balance goes back up, ready to draw again.
The facility usually runs for a set period, often reviewed every year, and some lenders require the balance to be cleared at points during the year.
Who it suits
| Situation | Why a line of credit helps |
|---|---|
| Seasonal trade | Draw in the quiet months, repay in the busy ones |
| Customers paying on 30 to 60 days | Cover wages and suppliers while you wait |
| Regular stock purchases | Pay suppliers upfront, repay as the stock sells |
| Payroll peaks | Christmas pay, a big week, or quarterly tax |
| Emergencies | A breakdown or urgent repair, without a new application |
| Growing fast | A buffer while revenue catches up with costs |
It’s less suited to buying a long-life asset, such as a truck or machine, which is usually better on equipment finance, or to funding a big one-off project, where a term loan may be cleaner.
How alternative lenders approve lines of credit
Most alternative lenders size a line of credit on your bank statements. They look at average monthly deposits, how often the balance dips into the red, whether there are dishonours, and what other lenders are being repaid from the account. The stronger and steadier those statements are, the larger the limit.
Unsecured lines typically range from $5,000 to $500,000. If you need more, or your credit file is badly bruised, a property-secured line of credit can go higher, up to $5,000,000 for the right file.
Lines of credit and bad credit
A credit problem doesn’t automatically rule you out. Lenders will want to know what happened, whether it’s resolved, and whether the business account is being run well now. Paid defaults and old issues are often fine. If the problems are recent or serious, the lender may offer a smaller starting limit that grows over time, or ask for security. See bad credit business loans.
Sizing your limit
Too small and it runs out just when you need it; too large and you may pay fees for money you never use. A practical way to size it:
- Use our cash gap calculator to find the lowest point your balance would reach over the next six months
- Add a buffer for a slow-paying customer or an unexpected cost
- Check that your turnover comfortably supports that limit
What it costs
We don’t publish rates, because pricing depends on your file. What matters is the total cost of having and using the line. Ask for:
- Any establishment fee
- Ongoing line or account fees, and whether they apply when you don’t draw
- How interest is calculated on drawn balances
- Any fees for drawing or repaying
- What happens at review or renewal
Then estimate how much you’ll actually draw over a year, and work out the total dollars. That’s the number to compare with other options.
Line of credit or term loan?
| Line of credit | Term loan | |
|---|---|---|
| Best for | Ongoing, variable needs | One-off, known costs |
| Repayments | Flexible, based on what you draw | Fixed schedule |
| Interest | On drawn balance | On the full loan |
| Reuse | Yes, up to the limit | No, a new loan is needed |
Many businesses use both: a term loan or equipment finance for the big purchase, and a line of credit for day-to-day swings. If your income is seasonal, read our page on irregular income.
An illustrative example
A Toowoomba agricultural parts supplier (illustrative only) had customers who paid on 30 to 60-day accounts while its own suppliers wanted payment within 14 days. The bank declined an overdraft after a loss year caused by a drought. A specialist lender looked at twelve months of statements showing a solid recovery and approved a $120,000 line of credit. The owners drew it each time a big stock order landed and repaid it as farm customers paid. In the first year, the balance rarely sat above half the limit, so they only paid for what they used.
Set up a buffer before you need it
If you want a line of credit in place for the next gap, start a 60-second enquiry. There’s no credit check when you first enquire, your file won’t be blasted out to a list of lenders, and a real person will help you size a limit that fits your cash cycle. Please tell us accurately how your income moves through the year on the form; it helps us match you to the right lender first time. See if you qualify.
Frequently asked questions
How is a line of credit different from an overdraft?
They work in a similar way, but an overdraft is attached to your everyday bank account and usually comes from your bank, while a line of credit is a separate facility you draw into your account. Alternative lenders offer lines of credit to businesses banks won't give an overdraft to.
Can I get a line of credit with bad credit?
Sometimes, yes. Lenders focus on consistent deposits and how the account is run. Paid or explained defaults may be accepted. Serious or recent credit problems may mean a smaller limit or a need for property security.
Are there fees if I don't use it?
Some lines of credit charge establishment fees, line fees or monthly account fees whether you draw or not. Ask for every fee in writing and compare the total cost of having the line available.
How quickly can a line of credit be set up?
For a straightforward file with statements ready, funding is possible in as little as 24 hours once approved. The real advantage is that once it's open, the money is there whenever you need it, without a new application.