Quick answer
A business line of credit is an approved limit you can draw on whenever the business needs cash, repay when money comes in, and draw again. You generally pay interest only on the amount you've used, not the full limit. It suits businesses with uneven cash flow, seasonal swings or regular timing gaps, and is usually sized on turnover and bank statements.
Key points
- A revolving limit: draw, repay and redraw as needed.
- You're generally charged on what you use, not the whole limit.
- Unsecured limits are typically sized on turnover and bank statements; property can support larger limits.
- Best for gaps that come and go, not for long-life assets.
- Unsecured limits
- Typically $5k – $500k
- Structure
- Revolving limit
- Best for
- Lumpy or seasonal cash flow
Some months are fat, some are lean, and most businesses spend a fair bit of energy shuffling money from one to the other. A line of credit is built for exactly that shuffle. It sits there quietly, ready when wages land before customers pay, and costs very little when you’re not using it.
What is a business line of credit?
It’s an approved credit limit attached to your business. You draw money from it when you need to — in one go or bit by bit — and pay it back as cash comes in. Repaid amounts become available again, so the limit can be used over and over. business.gov.au lists lines of credit alongside overdrafts as a core form of short-term business funding.
Think of it as the opposite of a term loan. A term loan hands over a fixed lump sum on day one and you repay it on a schedule. A line of credit hands you a reservoir, and you decide how much water to take out.
How is interest charged on a line of credit?
With most facilities, interest is charged on the drawn balance rather than the full limit. So if you have a $100k limit but only use $20k for three weeks, you’re paying interest on $20k for three weeks. Some facilities also carry a line fee, account fee or establishment fee, so it’s worth asking for the full cost picture, not just the headline.
We don’t publish rates, because pricing depends on the business’s circumstances — but we’ll happily explain how a particular facility charges, in dollars, before you commit.
Who is a line of credit good for?
- Seasonal businesses — tourism operators, landscapers, retailers with a big Christmas — who need to carry costs through the quiet months. See seasonal business finance.
- Businesses waiting on customers — trades, wholesalers and agencies invoicing on 30- to 60-day terms.
- Owners who like a safety net for the unexpected: a broken-down van, a big supplier discount, an opportunity that won’t wait.
- Businesses replacing a bank overdraft that’s been reduced or cancelled. See overdraft alternatives.
How does it work, step by step?
- Enquire. Tell us the limit you’d like and why. There’s no credit check at this step.
- Trading review. The lender looks at recent bank statements, turnover consistency and existing debts.
- Limit set. An approved limit is offered, with the fees and repayment rules spelt out.
- Draw when needed. Transfer funds to your business account from an online portal or by request.
- Repay as cash comes in. Some facilities require minimum regular repayments; others let you repay freely within the term.
- Annual review. Many lenders review the limit periodically against how the business is trading.
What are the pros and cons?
| Pros | Cons |
|---|---|
| Use only what you need, when you need it | Easy to let a short-term buffer become long-term debt |
| Interest is generally on the drawn amount | Line or account fees may apply even when unused |
| Reusable — repay and redraw without reapplying | Limits can be reduced if trading falls |
| Ideal for gaps that come and go | Not suited to funding long-life assets |
| Can replace a hard-to-get bank overdraft | Larger limits may need property security |
What does a line of credit look like in practice? (illustrative)
A Sunshine Coast landscaping business earns most of its money from September to March. Through winter, wages and vehicle costs keep running while work slows. The owner sets up a line of credit and draws on it from May to August to cover the gap, then clears the balance as spring jobs are invoiced and paid.
Across the year, the balance might sit at zero for six months, which keeps the cost down compared with a lump-sum loan taken out just in case. The trick is the discipline: clearing it fully each spring, so it’s genuinely a seasonal buffer. Want to size your own gap first? The cash-flow gap estimator does it in seconds. This example is illustrative only.
How do you use a line of credit wisely?
- Give it a job description. “Covers the winter gap” or “bridges customer payments” — not “general spending”.
- Track how often it’s fully drawn. If it’s maxed out for months, you may need a term loan or a rethink of pricing and costs.
- Pair it with better collections. business.gov.au’s tips on improving cash flow — invoicing promptly, tightening payment terms, managing stock — make every dollar of limit go further.
- Keep a buffer of unused limit for genuine surprises.
If your need is actually a one-off purchase, a working capital loan or an unsecured loan is often a neater fit. Not sure which? Let a real person compare them for you.
What documents will you need?
- Photo ID for each director or owner
- ABN or ACN details
- Recent business bank statements
- For larger limits: BAS, financial statements and details of existing debts
- Property details if you’d like a larger, secured limit
What are the alternatives?
- Overdraft alternatives — the wider family of revolving facilities.
- Invoice finance — a limit that grows with your unpaid invoices.
- Merchant cash advance — repayments that flex with card takings.
- Seasonal business finance — structured around predictable peaks and troughs.
Would a line of credit take the stress out of your cash flow?
If your business is good at making money but bad at receiving it on time, a line of credit can turn constant juggling into something much calmer. We’ll tell you honestly whether it suits your pattern of income, or whether another structure would cost less.
Finding out is free and won’t affect your credit score — we don’t do a credit check when you enquire. We don’t spray your details across the market, and you’ll hear from an actual lending specialist. Please be accurate about your turnover and how your income moves through the year, so we can suggest the right limit first time. See if you qualify.
Frequently asked questions
How is a business line of credit different from a business loan?
A business loan pays you a lump sum that you repay over a set term. A line of credit gives you a limit to draw on and repay repeatedly, so you only borrow what you need, when you need it.
Do I pay anything if I don't use my line of credit?
Many facilities charge little or nothing in interest when the balance is zero, but some have ongoing account or line fees. Check the fee schedule so you understand the cost of simply having the limit available.
How big a limit can my business get?
Unsecured limits are typically sized on turnover and bank statements, within the usual $5k to $500k range for unsecured options. Larger limits may be possible with property security.
Can a line of credit replace a bank overdraft?
For many businesses, yes. A line of credit does the same job of covering short-term shortfalls, and non-bank versions can be easier to get than a traditional overdraft.
Will my limit ever be reduced?
Lenders review limits periodically against your trading. If turnover drops or the account is constantly maxed out, a lender may reduce or restructure the limit, so it pays to use it as a buffer rather than permanent debt.