Quick answer
A business line of credit is a revolving limit you draw on when you need it, repay, and draw on again. It tends to suit trading businesses with recurring, up-and-down cash needs — wages before invoices are paid, stock before sales, seasonal dips. It's sized on turnover and bank statements. It's less suited to one-off purchases, which usually fit a loan, or to businesses not yet trading.
Key points
- Draw, repay, draw again — built for needs that come and go.
- For trading businesses; sized on turnover and bank statements.
- Great for recurring gaps; less suited to one-off purchases.
- Works best when the balance regularly comes back down.
- Type
- Revolving limit
- For
- Trading businesses
- Sized on
- Turnover and bank statements
Some funding needs are like a single hurdle: you clear it and move on. Others are more like waves: they come in, they go out, and they come back again next month or next season. A business line of credit is built for the waves.
If your cash needs rise and fall on a rhythm, this might be the right fit. Here’s how to tell.
How does a business line of credit work?
You’re approved for a limit. You draw on it when you need to — to pay wages, suppliers or a bill — and repay it when money comes in. Then you can draw on it again. You’re generally only charged on what you’ve drawn, although fees may apply to the facility itself.
It’s sized on your turnover, bank statements and existing commitments, and it’s designed for trading businesses rather than start-ups.
Who does it tend to suit?
| Your need | Why a line of credit fits |
|---|---|
| Paying staff before customers pay | Draw each pay cycle, repay as invoices clear |
| Buying stock before it sells | Draw for the order, repay through sales |
| Seasonal dips | Draw in the quiet months, repay in the busy ones |
| Progress claims that lag behind costs | Covers the gap between stages |
| A ready buffer for surprises | Arranged in a calm month, used when needed |
When might a loan suit better?
- A one-off purchase. A machine, a vehicle or a fit-out suits a loan matched to its life.
- A need that won’t come back down. If you’d draw the full limit and leave it there, a loan with a set term is more honest about what’s happening.
- You’re not trading yet. Lines of credit rely on trading history.
- A large, long-term investment. Property-secured loans suit bigger amounts and longer terms.
Our which loan is right for me guide compares all the main options side by side.
How do you size a line of credit?
The most useful tool is a 13-week cash forecast. Map money in and out week by week, find the lowest point in your running balance, and that’s roughly the limit you need — plus a modest buffer. Our cash runway guide walks through it with an example.
Oversizing isn’t free: a bigger limit than you need can come with higher fees and more temptation. Undersizing means you’ll hit the ceiling at the worst moment. Aim for the deepest realistic dip, plus a little.
Once you have a rough number, a real person can check what’s realistic — there’s no credit check when you first enquire.
What habits keep a line of credit healthy?
A line of credit is a great servant and a poor master. These habits keep it working for you:
- Repay when cash comes in. Make it a routine, not an afterthought.
- Watch the low point. If the balance never gets back to zero or close to it, your gap may have become structural.
- Use it for what it’s for. Recurring gaps, not one-off purchases or personal spending.
- Review it regularly. Every few months, check whether the limit still suits.
- Fix the cause where you can. Faster invoicing and better terms shrink the gap, so you draw less.
An illustrative example
Illustrative only. A physiotherapy clinic bills a large share of its work to workers’ compensation insurers, which pay weeks after treatment. The clinic’s wages and rent are fixed. Every month there’s a stretch where money has gone out and insurer payments haven’t arrived.
Its funding plan ranks a line of credit first, sized to the deepest point in its 13-week forecast. The coach’s note suggests tightening the claim submission process too, so payments arrive sooner and less of the limit is used.
What will you need?
- Photo ID and ABN (plus ACN for a company)
- Recent business bank statements, ideally covering a full cycle of your ups and downs
- BAS lodged and up to date
- A short explanation of your cash cycle — what causes the gap and when it closes
- Details of existing business debts
Line of credit or overdraft or loan: a quick comparison
| Business loan | Line of credit | |
|---|---|---|
| How you get the money | One lump sum up front | Draw on a limit when you need it |
| Repayments | Set schedule over the term | Repay as cash comes in; limit becomes available again |
| Best for | One-off purchases, defined projects | Recurring gaps, seasonal swings, buffers |
| Risk to watch | Borrowing more than the job needs | A balance that never comes back down |
Overdrafts, where available, work in a similar revolving way; the structure, assessment and fees vary from lender to lender. What matters is whether a revolving tool suits your need.
When is the best time to set up a line of credit?
When you don’t urgently need it. That sounds backwards, but it’s true for almost every business. Lenders are assessing your recent statements, so a limit arranged after a strong quarter is usually easier to secure — and larger — than one arranged in the middle of a squeeze. Many owners set one up after their busy season, leave it untouched, and treat it as insurance against the next slow patch or surprise bill. If it’s never drawn, it’s done its job by letting you sleep at night.
Waves in your cash flow? Let’s find the right limit
A line of credit arranged at the right size, for the right reasons, can take a lot of stress out of running a business. We’ll help you decide whether it’s the right tool and how big it should be.
Enquiring takes about a minute with no credit check. We don’t pass your details down a line of lenders; a real person looks at your business and calls you. Please be accurate about your monthly deposits and the size of your gap, so the first conversation gets you to the right fit.
Frequently asked questions
How is a line of credit different from a business loan?
A loan gives you a lump sum repaid over a set term. A line of credit gives you a limit you can draw on, repay and redraw as needed. Loans suit one-off needs; lines of credit suit recurring ones.
What's a line of credit good for?
Recurring gaps: paying wages or suppliers before customers pay, buying stock ahead of sales, getting through seasonal dips, or having a buffer ready for the unexpected.
How big a limit can I get?
Limits are sized on your turnover, bank statements and existing commitments. A business with strong, steady deposits can generally access a larger limit.
Is a line of credit the same as an overdraft?
They're similar in that both are revolving. The way they're structured, assessed and repaid can differ between lenders. The key question is the same: does a revolving limit suit your need?
What's the risk with a line of credit?
The main risk is the balance creeping up and never coming back down, which turns a flexible tool into permanent debt. Regular reviews and a habit of repaying when cash comes in keep it healthy.