What Is a Business Line of Credit and How Does It Work?

A line of credit is one of the most flexible business finance options available, yet it is often misunderstood. In this podcast, we explain what a business line of credit is, how it works, and why many businesses use it as a backup for unexpected costs or invoices.

What Is a Line of Credit? A business line of credit is similar to a term loan but offers far more flexibility. Instead of receiving a lump sum upfront, you are approved for a limit and can draw funds as needed. Interest is generally charged only on the outstanding balance, not the full approved limit. Approval is subject to lender assessment.

How Businesses Use a Line of Credit: Many businesses keep a line of credit in place as a safety net. It can be used to manage unexpected expenses, cover short-term cash-flow gaps, or pay invoices when timing is tight. Funds are available when needed without reapplying each time.

Who Can Access a Business Line of Credit? Some non-bank lenders offer lines of credit to businesses that banks may not assist. Assessment may focus on cash flow and business performance rather than traditional lending criteria. Eligibility depends on lender requirements.

Key Takeaway: A business line of credit provides flexible access to funds and can help businesses stay in control of cash flow when unexpected costs arise.

FAQ: Business Lines of Credit in Australia

What is a business line of credit?

A business line of credit is a flexible finance facility that allows a business to access funds up to an approved limit and pay interest only on the amount used.

How is a line of credit different from a term loan?

A term loan provides a lump sum upfront with fixed repayments, while a line of credit allows ongoing access to funds as needed.

Do I pay interest on the full credit limit?

No. Interest is typically charged only on the outstanding balance drawn, not the full approved limit. Terms vary by lender.

Can a line of credit help with unexpected invoices or expenses?

Yes. Many businesses use a line of credit to manage unexpected invoices or short-term cash-flow gaps. Approval is subject to lender criteria.

Can businesses with bad credit get a line of credit?

In some cases, yes. Certain lenders assess applications based on cash flow and business performance rather than credit score alone. Approval is subject to assessment.

Is approval guaranteed through a finance broker?

No. A finance broker cannot guarantee approval. All finance facilities are subject to lender assessment, eligibility, and approval conditions.