A business line of credit is a revolving credit facility that allows a business to draw funds up to a pre-approved limit, repay them, and redraw as needed. Unlike a term loan — which delivers a lump sum and is repaid over a fixed schedule — a line of credit gives the business ongoing access to capital that can be used when required and repaid when cash flow allows.
How a Business Line of Credit Works
Once approved, your business can draw any amount up to the credit limit at any time. Interest is only charged on the amount actually drawn — not the full limit. As repayments are made, the available credit is restored. This structure makes a line of credit ideal for managing irregular cash flow, bridging gaps between invoice payment and supplier payment, or funding short-term opportunities without applying for a new loan each time.
Line of Credit vs Term Loan — Which to Choose?
A term loan is better when: you are buying a specific asset (equipment, vehicle), you want the certainty of a fixed repayment schedule, or you are borrowing a large amount for a defined purpose. A line of credit is better when: cash flow is irregular and you need flexible access to funds, you are managing a seasonal business, you want to bridge invoice payment gaps, or you want a safety net for unexpected operating expenses.
Costs of a Business Line of Credit
Business line of credit costs typically include: an interest rate on drawn amounts (variable or fixed, ranging from 8 to 25 percent per annum depending on the lender and risk profile), a monthly or annual facility fee (even when no funds are drawn), and sometimes an establishment fee. Compare total cost carefully — a lower interest rate with a high facility fee may be more expensive overall than a slightly higher rate with no ongoing fees.
How to Qualify for a Business Line of Credit
Most Australian business line of credit products require: an active ABN (ideally 12 or more months), a minimum monthly revenue threshold (typically $10,000 to $30,000 per month depending on the lender), clean personal credit history, and three to six months of business bank statements. Security is not always required for smaller limits — unsecured lines of credit up to $250,000 are available from some specialist lenders.
Overdrive Funding can help you find the right business line of credit across specialist lenders. Free service — contact us for a comparison.