Credit limit

Put simply, a credit limit is the ceiling on a facility you can dip into again and again. With a term loan, the full amount arrives on day one and shrinks with every scheduled repayment. A revolving credit facility, such as a business card, overdraft or line of credit, instead gives you room to borrow up to a set figure, pay it back and borrow again. That figure is the limit.

Limit, balance and available credit

Three numbers sit on every revolving account, and they’re easy to blur together:

Term	What it means	Example on a $60k line of credit
Credit limit	The most you can owe at any time	$60,000
Balance	What you owe right now	$41,500
Available credit	Room left to draw	$18,500

Interest is normally charged on the balance, but certain facilities add a line fee calculated on the full ceiling, drawn or idle. That fee is one reason not to hold a far bigger limit than the business needs.

How do lenders decide on a business credit limit?

It depends on the product. Banks size an unsecured overdraft largely from turnover, profit and conduct on your accounts. With a secured facility, the cap usually tracks how much equity the security offers. An invoice finance limit moves with your debtor ledger, commonly as a share of approved invoices, and may carry a concentration limit restricting how much can come from one customer.

Limits aren’t fixed for life. Business facilities are commonly reviewed each year, and a lender may trim the limit if turnover falls, the security changes or the account is regularly over its limit. Owners who’ve been knocked back on an increase will find options on our refused a business overdraft increase page.

Why your unused limits shrink your borrowing power

This is where the term bites. When a lender works out serviceability, it generally assumes every limit could be fully drawn. So it allows a monthly repayment based on the whole limit, not the balance you actually carry. Personal card limits are also visible to lenders, because the OAIC’s rules allow each account’s limit to be listed on your credit report.

Example (illustrative assumptions): Tom runs a two-van plumbing business on the Gold Coast and wants a $120k equipment and working capital facility. He has three personal cards with combined limits of $45k. He clears them in full every month, so his balances are close to nil.

Suppose the lender’s policy assumes a monthly commitment of 3% of each limit. That’s $1,350 a month, or $16,200 a year, counted against Tom’s income even though he owes almost nothing. Before applying, he cancels two cards and drops the third to a $6k limit. The assumed commitment falls to $180 a month, freeing more than $14k a year of serviceability, which in his case was the difference between being offered $90k and the full $120k.

Your own lender’s percentage may differ; the point is that idle limits are treated as debt. Run your numbers through our business borrowing power calculator with and without those limits, or ask us how a lender would view yours.

Terms that sit alongside credit limit

The line of credit is the most common business facility with a limit, and our comparison of an overdraft vs a line of credit sets out how each is priced and reviewed. A drawdown is each time you use the limit, and your credit file is where personal limits are recorded.

Need more headroom than your current limit gives you?

Whether it’s a bigger overdraft, a line of credit secured by property or a facility tied to your invoices, there’s usually a way to give the business more room. Telling us about it is a one-minute job. Your report stays unread at that stage, since sending the form triggers no credit check, and your name doesn’t get passed down a line of funders. Instead, someone from our team looks over what you’ve shared and calls you directly. List your existing limits honestly, used or not, because those figures decide which lenders can realistically say yes.

Find out how much room you could get →