Business line of credit: a standing limit you dip into when cash runs thin

Two businesses each need $60k at some point this year. The first needs it once, to buy a machine. The second needs $15k in March, $40k in June, nothing in September and $25k before Christmas, repaying each time customers settle up. A term loan suits the first. The second is exactly who a line of credit was designed for.

How does a business line of credit work?

Once a limit is approved (call it $60k), the routine repeats as often as you like:

1. Draw an amount into your business account, usually through an app or online banking, in minutes.
2. Use it for whatever the business needs: wages, a supplier, a tax payment.
3. Repay as money comes in, either by scheduled debits or extra payments.
4. Redraw the repaid amount whenever you need it again, without a fresh application.

The government’s business.gov.au guidance makes the same point: interest accrues on the borrowed portion, and the untouched part of the limit attracts none. That’s the core appeal. A $60k line with $10k drawn costs interest on $10k.

What does an unused limit cost?

This is the part owners most often miss. Interest follows the drawn balance, but many lenders also charge for keeping the limit available. It may be called a line fee, a service fee, an account fee or a facility fee, and it’s usually calculated on the limit, not the balance.

Take Prospa’s line as an example. As at October 2026 its website lists:

• Limits up to $500k, with no establishment fee
• A weekly service fee charged from settlement, based on the facility limit
• Minimum weekly repayments that cover interest and principal and move with the drawn balance
• No upfront security up to $150k in combined Prospa funding; property ownership is required above that
• A check-in every two years, and if the line isn’t continued, the balance is repaid over a two- or four-year paydown
• Eligibility including at least two years of trading and $6k in monthly turnover

Other lenders structure fees differently. Some charge an annual fee, some a monthly one, some a percentage of the limit. The point holds across all of them: a limit bigger than you need is not free. Size it to your real peak gap.

Line of credit, term loan or overdraft?

	Line of credit	Term loan	Overdraft
How funds arrive	Drawn as needed into your account	One lump sum	Account balance goes below zero
Reusable	Yes, up to the limit	No; borrow again with a new loan	Yes, up to the limit
Interest on	Drawn balance	Full loan from day one	Overdrawn balance
Ongoing facility fee	Common	Rare	Common
Repayments	Minimums, often weekly	Fixed schedule	Often interest only, with periodic review
Best for	Recurring short gaps	A single purchase or project	Day-to-day float in your main account

Our comparisons of line of credit vs term loan and overdraft vs line of credit go deeper, and the business overdraft page covers the bank-account version in full.

How do lenders decide your limit?

For unsecured lines, the bank statement is the application. Lenders look for steady deposits and sensible behaviour around them.

Lender checks	What helps
Average monthly turnover	Consistent deposits over six to twelve months
Cash flow pattern	Predictable seasonal swings you can explain
Existing debt	Few other lenders debiting the account
Account conduct	No dishonours, few overdrawn days
Trading history	Commonly one to two years for unsecured lines
Security	Property can lift the limit well beyond unsecured ranges

Owners with real estate who want a bigger or lower-cost facility should look at whether a secured line of credit beats the unsecured version.

Want a sense of what limit your statements might support? Send us the basics; a first enquiry carries no credit check.

A worked example: a landscaper’s year

This is an illustrative scenario.

Kiri runs a landscaping business with three staff. From September to March her crews are booked solid; through the cooler months work slows, yet wages and vehicle costs keep running. Big jobs pay 30 days after completion. Over the year, her worst gap between costs paid and invoices received is about $45k, in late winter when she also buys materials for spring jobs.

• She takes a $50k limit: her peak gap plus a small margin, not the $100k she was offered.
• She draws $20k in June for wages, $25k in August for materials and equipment hire.
• Spring invoices clear the balance by November.
• Across the year, interest is charged only on what was drawn for the months it was out, plus the line’s facility fee on the $50k limit.

Had she taken the $100k limit, the facility fee would have been calculated on double the amount with no benefit. Our cash flow gap calculator helps you find your own peak gap before you choose a limit, and the guide to business loans for seasonal businesses covers more on uneven years.

Pros and cons

In favour

• Money is there before the problem arrives, not after.
• Pay interest only on what’s drawn.
• No reapplying each time a gap opens.
• Smaller unsecured lines can be set up quickly on bank statement data.

Against

• Facility fees apply even in quiet months.
• Easy access can turn a short-term tool into permanent debt.
• Lenders can review, reduce or close a line, often at set check-ins.
• Unsecured limits are capped by turnover.

Mistakes to avoid

• Funding long-life assets from the line. A ute or a fit-out paid from a revolving line ties up the limit for years. Use equipment finance for those.
• A balance that never comes down. If the line is always drawn to the limit, it has quietly become a term loan, usually a more expensive one.
• Choosing the biggest limit offered. See the facility fee point above.
• Ignoring the review date. Know when the lender reassesses, and what happens to the balance if the line isn’t renewed.

Line in place before you need it

The best time to set up revolving credit is while trading is steady and the statements look good, not the week a big customer pays late. A well-sized line means the next tight month is a non-event.

Our enquiry asks for about a minute of your time and doesn’t involve any check on your credit file. We don’t blast your enquiry out to every funder going, which means one call from us rather than a dozen from strangers. A specialist reviews your turnover and the gaps you want covered, then picks up the phone to talk through limits and lenders. Accurate turnover figures and an honest picture of existing debts help us suggest the right size of facility from the start.

See what limit could suit your cash flow →