Business Line of Credit: Draw What You Need, When You Need It

A business line of credit is a revolving credit facility that gives your business access to a pre-approved credit limit. Rather than receiving a lump sum and repaying it on a fixed schedule, you draw funds when you need them, repay them when cash comes in, and draw again — repeatedly, without reapplying. You only pay interest on the amount you have drawn at any given time, not on the full approved limit.

For example, if your approved limit is $150,000 and you draw $40,000 to cover payroll, you pay interest only on the $40,000. When your revenue arrives and you repay the $40,000, that amount is immediately available to draw again. This revolving cycle is what distinguishes a line of credit from a working capital loan, where interest runs on the full loan amount from day one. A line of credit therefore suits businesses with recurring or unpredictable cash flow gaps, rather than a single, specific need with a known end date. Book a free consultation if you are unsure which structure is right for you.

Interest on a business line of credit is calculated on the drawn balance only — not on your total approved credit limit. This is one of the key cost advantages of a revolving facility over a standard term loan, and it is worth understanding precisely because it affects how you should be using the facility.

However, interest is not the only cost. Most lines of credit also carry a line fee or facility fee — an ongoing charge to keep the facility open regardless of whether you draw. This fee is typically calculated as a percentage of the approved limit per month or per quarter, which means a larger unused facility costs more to maintain. Consequently, the total annual cost of a line of credit is interest on drawn funds plus the ongoing line fee — and it is that combined figure we compare across lenders, not just the headline interest rate. In our experience, many businesses focus on the interest rate and overlook the line fee entirely, which can make a cheaper-looking facility considerably more expensive in practice.

A business overdraft and a business line of credit serve a similar purpose — both provide flexible, on-demand access to funds — but they differ in several important ways. A bank overdraft is attached to your transaction account, meaning funds are drawn directly from your everyday banking account when your balance goes below zero. A line of credit is typically a separate facility with its own account, from which you draw funds as a distinct transaction.

In practical terms, overdrafts are generally offered only by your existing bank and are limited by that bank's appetite for your business. A line of credit arranged through a broker, by contrast, is sourced across a panel of lenders — which means we can find a facility that better matches your credit profile, revenue history, and security position. Furthermore, credit limits on broker-arranged lines of credit are often higher than overdraft limits for the same business, and the approval process is typically more straightforward when you have a specialist preparing the application. For most SME businesses, a line of credit is the more flexible and accessible option. Nevertheless, if you already have an overdraft, it is worth reviewing whether a line of credit would serve you better. We can assess both options at no cost.

Credit limits for unsecured business lines of credit typically range from $10,000 to $250,000, depending on your revenue, trading history, and bank statement quality. Most non-bank lenders set their unsecured limit ceiling at $150,000 to $250,000, above which property security is generally required. With a registered mortgage over residential or commercial property, access to significantly higher limits opens up — often $500,000 and above through bank lenders.

The approved limit is not simply a function of what you ask for. Lenders assess your average monthly revenue, how consistently that revenue flows, the length of your trading history, and the cleanliness of your bank statements. As a result, a business with $50,000 in monthly revenue but with irregular deposits and visible ATO debits may receive a lower offer than a business with $30,000 in monthly revenue but with clean, consistent statements. In addition, the purpose of the facility influences assessment — lenders look more favourably on businesses that can articulate a clear, recurring need for the revolving access. We help clients present their application in the most favourable light before approaching any lender.

Yes, though the options narrow slightly for businesses with shorter trading histories. Most non-bank lenders require a minimum of 12 months of trading for a line of credit, compared to 6 months for some working capital loan products. Bank lenders typically require 2 or more years. That said, for businesses between 6 and 12 months of age, some specialist lenders will consider smaller line of credit facilities, particularly where revenue is consistent and the business can demonstrate a genuine recurring cash flow need.

For newer businesses, a working capital loan is often the more accessible starting point — it is easier to qualify for with a shorter trading history and provides a defined lump sum without the ongoing line fee. Once your business has 12 to 18 months of clean statements and a clear revenue pattern, transitioning to a line of credit becomes considerably easier. We regularly help businesses plan this transition — starting with the product that suits their current position and restructuring as they grow. Book a free consultation and we can assess where you currently sit across our full lender panel.

This is one of the most important questions to ask before setting up a line of credit, and one that many businesses overlook until they receive their first statement. When you are not drawing from the facility, you do not pay interest — however, most lines of credit carry an ongoing line fee or facility fee that applies regardless of whether you draw. This fee is typically between 0.5% and 2% of the approved limit per annum, charged monthly or quarterly.

To put that in practical terms: a $200,000 line of credit with a 1.5% annual line fee costs approximately $3,000 per year to keep open — whether you draw $200,000, $20,000, or nothing at all. Consequently, the right facility size matters. A limit that is too large relative to your actual drawdown activity costs you money in unnecessary fees. In our experience, this is one of the most common and correctable inefficiencies in how businesses manage their lines of credit. We model the total cost of the facility — interest plus fees — for each lender we consider, and we size the facility based on your actual cash flow cycle rather than the maximum available. If your current line of credit has not been reviewed recently, get in touch and we can assess whether it is still the right fit.