01
An unused limit can still cost money if the facility charges line or account fees.
Line of credit
A limit to draw on, rather than one lump sum.
A business line of credit gives access to an approved limit. Funds are drawn when needed and, as the balance is repaid, the limit is generally available again.
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In short
Updated
What is a business line of credit?
A business line of credit is a revolving facility with an approved limit. The business draws funds when it needs them, interest is usually charged on the amount drawn, and as the balance is repaid the limit is generally available again. It suits cash flow needs that recur or move up and down.
How it works
Line of credit, explained.
With a line of credit, a lender approves a maximum limit. The business draws what it needs and, as the balance is repaid, the available limit is generally restored. Interest is usually charged on the amount drawn, although some facilities also carry establishment, account or undrawn-limit fees.
Structures vary. Some lines of credit are unsecured and assessed largely on trading performance; others sit against security. Limits are typically reviewed from time to time.
Often considered when
Where it tends to come up.
- Cash flow moves up and down through the month or year
- Stock or supplier purchases recur
- The business wants a buffer available rather than a lump sum sitting idle
- There is a regular gap between invoicing and being paid
What lenders commonly look at
- 01Monthly turnover and how consistent it is
- 02Time trading under the current ABN
- 03Business bank account conduct, including dishonours
- 04Existing facilities and their repayments
- 05Tax position with the ATO
- 06Industry
Each lender weighs these differently, and criteria change over time.
Worth weighing
Before you apply.
02
Repayment arrangements differ. Some require a fixed minimum, others a share of the drawn balance.
03
A single, defined purchase may be better matched to a business loan than a revolving limit.
General information only. It does not take your circumstances into account and is not a recommendation, offer or approval. Funding is subject to lender assessment, eligibility and terms.
Answers
Line of credit questions
How is a line of credit different from a business loan?
A business loan provides one fixed amount up front with scheduled repayments. A line of credit provides a limit that can be drawn, repaid and drawn again. A defined one-off purchase is often better matched to a loan; recurring or uneven cash flow needs are often better matched to a line of credit.
Do you pay for an unused line of credit?
Sometimes. Interest is usually charged only on the drawn balance, but some facilities also charge establishment, account or undrawn-limit fees. Check the full fee schedule, not just the interest, before comparing facilities.
Is a business line of credit secured or unsecured?
Both exist. Some lines of credit are unsecured and assessed largely on trading performance; others sit against property or other security. Limits are typically reviewed from time to time.
How does Tennanova help with a business line of credit?
Tennanova's Funding Check shows whether a business line of credit is among the funding structures worth exploring for your business, based on your answers. It involves no credit enquiry and is general information, not an offer or approval. Tennanova is not a lender and does not provide credit.
Funding Check
Know what may fit before you apply.
Tell us about the business. We'll show you the funding structures that may be worth a closer look, then you decide whether to go further.