A business line of credit, also known as an LOC is a type of business finance that allows you to draw against an agreed amount of funds when you need to. The agreed amount is your approved credit limit. Once your business has a line of credit facility in place you can access these funds when you choose, without having to get approval from your lender or without having to apply again.
Compare the Best Line Of Credit Options
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The different options available
How does a line of credit compare to other business loans?
|Loan Type||Requirements||Time to Funding & Amount||Avg. Interest Rate & Costs||Repayment Terms||How It Works|
|Secured Business Term Loan||Credit and ID Check. Bank statements. 12+ months in business. Business financials. Collateral in case you default, such as your home, car or other assets. More paperwork.||Slow (weeks or months)
$50k - $10m
2.97% - 9.83%
|A term loan is a loan that is repaid in regular payments over an agreed period of time. Usually for a specific purpose. You need to secure the loan with collateral such as property.|
|Unsecured Business Term Loan||Credit and ID check. Bank statements. 3+ months in business. Less paperwork. 100% online.||As fast as same-day
$5k - $250k
2.97 - 12.83%
|Same as above, but no collateral required.|
|Business Line Of Credit (LOC)||Credit and ID Check. Bank statements showing a good track record and that you can afford to borrow. Good credit score. Time in business of 6+ months. No collateral required.||Fast (1-2 days)
$5k - $250k
5.07% - 12.45%Application fee: 0.5% - 3% of credit limit.
Monthly service fee: varies
3-30 MonthsRevolving LOC has no term, once you repay you can draw down again.
|Agreed credit limit is made available to drawn down upon. Only pay interest on the amount you draw down.|
|Merchant Cash Advance||Credit and ID Check. Minimal paperwork. Very lenient. You don't need a perfect credit score. 6+ months in business, bank statements showing regular deposits. No collateral required.||Fast (1-2 days)
$5k - $250k
1-12 MonthsAn agreed % of your merchant sales is repaid daily (weekdays only).
|Lump sum Advance in return for a % of daily credit card and EFTPOS sales.|
How much can you borrow?
Interest and fees
Some lenders charge a one-off application fee. This is usually based on the approved credit limit. For example, you may need to pay 0.50% to 3% of your approved credit limit. So for a $50,000 limit the application fee would be anywhere from $250 to $1500. And there may be a minimum fee.
As with any finance product, line of credit interest rates vary from lender to lender. Depending on your business situation, the lender will approve your credit limit and interest rate which applies each time you draw funds. Generally speaking, you will only pay interest on the portion of funds you draw. For example, if you had a $25,000 line of credit and you withdrew $10,000, you would only be responsible for paying interest on the $10,000, not the entire $25,000. This gives you greater flexibility and should cost you less than short term business loans. Bear in mind that you will need to keep meeting your interest payments on any amount you draw until it’s paid back, so it can get costly if you only pay the interest and not the principle. On the flip side, you wouldn’t need to pay any interest during times when you do not access any of the funds.
Monthly service fees
Some line of credit facilities come with a monthly service fee for the privilege of having access to the funds. The monthly fee is payable whether or not you are using any of the funds. The fee varies between lenders and it’s important to understand all fees before you agree to a line of credit. It’s always best to check the comparison rate (interest rate and fees combined) when comparing lenders. Use our business line of credit calculator.
Line of credit requirements
Time in business
|Bank Lender||Non-Bank Lender|
The Pros and Cons of a line of credit
|Easy application process (non bank lenders)||Interest can add up if you don't pay down the balance|
|Fast access to money - funds available within 24 hours||Higher interest than a traditional term loan|
|Only pay interest on the actual funds you draw down, instead of full loan||Not recommend for capital purchases|
|Greater control - draw funds as and when you need them|
|Great for unexpected expenses|
Small Businesses Utilising Credit
very quick service