Business line of credit: a standing facility your company draws on

Most companies don’t run short of money because they’re unprofitable. They run short because money goes out before it comes in. Wages are due on Thursday, the big customer pays in 45 days, and the supplier wants payment before it ships. A business line of credit is built for exactly that mismatch.

How does a business line of credit work day to day?

The lender approves a limit. Your company can draw any amount up to that limit, usually through an online portal, and the funds land in your business account. As you repay, the available balance goes back up and can be drawn again. You’re charged on what you actually use, plus whatever account fees the contract includes.

A simple illustrative month for a wholesaler with a $60,000 limit might look like this:

Week	What happens	Drawn balance
1	Pays an import invoice early to secure stock	$40,000
2	Retail customers pay their accounts	$15,000
3	Wages and BAS instalment due	$35,000
4	Large order paid in full	$0

One approval covered three separate gaps. With a lump-sum loan, the company would have paid for $40,000 all month even when it only needed a fraction of it.

How do lenders set the limit?

A line of credit is assessed much like an unsecured business loan. The lender reads several months of bank statements and looks at average deposits, the spread between best and worst months, existing repayments and conduct such as dishonours or days overdrawn. Because the facility revolves, lenders also care about how the account behaves at its lowest point. A company that regularly dips close to zero before payday is a different risk from one that always holds a buffer.

Starting limits are often conservative. That’s normal. A track record of drawing and repaying cleanly is what typically earns a higher limit. If property is available, a secured line can carry a larger limit; our page on secured business loans explains that side.

What does a line of credit cost?

Every facility is priced on the company’s risk, so we don’t publish rates. The components to ask about are:

• the charge on funds drawn, and how often it’s calculated;
• any line fee charged on the limit whether you use it or not;
• draw or transfer fees;
• establishment and early closure fees.

Ask the lender to show you the total cost under a realistic pattern of use, such as half the limit drawn on average. Then run that through the repayment planner alongside any fixed-loan quotes. Sometimes the cheaper product on paper is the dearer one in practice, depending on how much of the limit you’d actually use.

When is a line of credit better than a loan?

A line wins when the need repeats and the amount varies. Seasonal stock, waiting on debtors, lumpy project payments and quarterly tax instalments are classic fits. It’s also a useful safety net for a company whose income is reliable on average but uneven week to week.

A fixed loan wins when the need is one-off and defined: buying a vehicle, a fit-out, paying out a partner or clearing a tax debt. Using a revolving line for those tends to leave it permanently drawn, which defeats the purpose and can cost more than a term loan. If invoices are the main cause of your gaps, also compare invoice finance, which grows with your sales ledger.

How to keep a line of credit working for you

From a lender’s perspective, the healthiest facilities are used and repaid, not parked at the limit. A few habits help:

1. Draw for a reason you could name, such as a specific invoice or payroll.
2. Repay from the income that the draw was covering, as soon as it arrives.
3. Keep at least some of the limit free for genuine surprises.
4. If the balance never comes down, talk to your lender about converting it into a term loan.

Those habits also make a limit increase much more likely at review time.

Line of credit, overdraft or credit card?

Companies often have all three on offer and aren’t sure which to use. A business credit card is convenient for small, frequent purchases and can be paid off monthly, but limits are usually modest and the cost of carrying a balance can climb. A bank overdraft sits directly on your transaction account and is simple to use, but banks tend to reserve them for well-established companies and may require property security. A non-bank line of credit sits between the two: usually a separate facility with a higher limit than a card, often easier to obtain than an overdraft, and drawn by transferring funds when needed.

The practical approach many companies take is to keep a card for everyday expenses, a line of credit for timing gaps, and term loans for defined, one-off investments. Keeping each tool to its job makes the costs easier to track and the facilities easier to renew.

Could your company qualify for a line of credit?

If your company has been trading for a while and the account shows steady deposits, there’s a good chance. The quickest way to find out is our 60-second enquiry. There’s no credit check when you first enquire, your details aren’t handed around a panel of lenders, and a real person will look at your statements with you. Please be accurate about turnover and existing facilities, since that decides whether a line, a loan or both makes sense. Ask about a line of credit.