Business Line of Credit Comparison Australia
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How Lend can help with a business line of credit
Choice of lenders
We work with dozens of lenders who offer business lines of credit to most types of businesses in Australia, giving you power to shop around.
What is a business line of credit?
A business line of credit is a facility that gives business ongoing access to funds they can draw down as needed. It works similarly to a credit card, with a set limit that the business can borrow from.
You then repay the funds you accessed either in regular installments or as a lump sum, with interest only applying to the drawn down amount,
With a revolving line of credit, your limit replenishes as funds are repaid and you can reuse the funds as many times as you want once you repay your balance. Unlike a business loan, you don’t have to reapply for a new line of credit each time.
Both bank and non-bank lenders offer business lines of credit and they’re most commonly used to cover regular expenses or cashflow fluctuations.
Business lines of credit can either have a fixed term (ranging from 3 to 30 months) or no set term (a revolving line). Either way once you have paid back the amount, you can draw down again, but with a fixed term line you must repay the full amount before the term ends.
Secured vs unsecured business line of credit
Secured business line of credit
A secured credit line requires some collateral (e.g. property, land, vehicles or other assets) as security for the funds you borrow. It typically requires more paperwork if you need to provide value assessments for the collateral you provide. You can generally access a higher credit limit if the line is secured by an asset.
Unsecured business line of credit
An unsecured business line of credit doesn't require an asset as collateral, generally making the application process quick and for businesses. Getting unsecured business finance generally means paying a higher rate of interest, as there is more risk for the lender. The maximum credit limit will also typically be lower with most lenders.
Note...
Even if you choose an unsecured line of credit, you may need to provide a personal guarantee to the lender. This means you may become personally responsible for playing back any funds borrowed if the business defaults.
Business line of credit interest rates
Interest rates on a business line of credit generally start from around 14% p.a. with our panel of lenders. Each business will be quoted personalised rate when they apply.
Like an unsecured business loan, your lender will determine your individual rate based on your business financial information and creditworthiness.
Remember that you only pay interest on the amount you've actively borrowed (used balance), not your entire credit limit. For example, if you have a line of credit of $50,000 and you withdraw $20,000, you would pay interest on the $20,000.
It means that even if the interest rate is higher, your actual interest costs on a business line of credit may still be lower versus a traditional loan.
Just keep in mind that you'll be charged interest on the funds borrowed until they are repaid in full. Because the repayment options are often flexible (e.g. interest-only repayments), they can become expensive unless you are making progress towards reducing the outstanding balance.
Who’s eligible for a business line of credit?
Most Australian businesses and sole traders can qualify for a line of credit if they meet the lender’s minimum criteria, including:
- Active ABN or ACN: This shows you’re operating a business registered in Australia.
- Trading history of six to 12 months: How long you’ve been in business is a big factor. Banks usually require a longer operating time than non-bank lenders.
- Provide financial statements: You must provide bank statements to show your business can meet its repayment obligations.
- Good credit score: Both your personal and business credit score will be checked. The minimum credit score for business lending is around 400.
How much can you borrow with a line of credit?
Businesses can generally borrow between $5,000 and $750,000 with a line of credit. According to Lend proprietary data, the median amount for a business line of credit in Australia is $40,000. Lenders determine your credit limit based on your business’ gross revenue and cashflow.
Credit limits and how they're calculated vary from lender to lender. For example, one lender may cap your credit limit at a percentage of your gross revenue (money from sales), whereas another lender may determine it based on your cashflow (money going in and out of the business).
Business line of credit fees
Application 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 $1,500.
Monthly fees
Line of credit facilities usually come with a monthly service or account fee to keep your line of credit open. Line fees typically range between $10 to $35 per month, although this changes between lenders. The monthly fee is payable regardless of whether you use your funds or not.
When to use a business line of credit?
You can use a business line of credit for any genuine business expenses.
A business line of credit is suitable for any small-to-medium enterprises (SMEs) with cashflow fluctuations, seasonal income or who offer payment terms to customers but need funds to cover immediate expenses.
Businesses can use a line of credit for instant access to capital to cover day-to-day expenses or cover larger business expenses like buying inventory or repairing equipment.
According to proprietary Lend data, the most common purposes businesses use a line of credit include:
- Access to working capital (paying contractors, buying inventory etc.): 60%
- Fund expansions/renovations: 15%
- Start a business: 10%
How to apply for a business line of credit
How does a business line of credit compare to other finance options
Business line of credit | Business credit card | Business loan | |
|---|---|---|---|
Credit limits | Up to $750k available as needed | Up to $100k available as needed | Up to $2m paid as a lump sum |
Maximum term | Can be unlimited | Unlimited | Up to 10 years |
Repayments | Monthly, either interest only or principal and interest | Monthly | Weekly, fortnightly or monthly |
Interest charged | Only on funds drawn down | Only on outstanding balance after interest-free days | On full balance |
Best for | Access to an ongoing credit facility for projects with multiple purchases | Day-to-day business spending | Large one-off purchases |
Learn more about business lines of credit
FAQs
You may still be able to get a line of credit if your credit history isn’t perfect. You may initially only qualify for a credit line secured against residential property or be asked to provide a personal guarantee. Personally-guaranteed credit makes you personally liable for the debt. You could alternatively apply for a bad credit business loan.
A business line of credit and business overdraft are simply two different ways of describing the same thing. The exception is that banks often provide an overdraft facility that is linked to a business transaction account, whereas non-bank lenders still offer what is effectively an overdraft but does not have a transaction account attached.
Yes, you can use a business line of credit to consolidate or refinance other cashflow debts. You generally can’t use it for repaying debt in arrears.
There are a few differences between a business line of credit and a business credit card. Firstly, you can use line of credit funds for any legitimate business expense, including paying vendors or employees. In contrast, you can't charge payroll or contract payments to a credit card. Secondly, a business line of credit typically has lower interest rates and a higher credit limit than a business credit card. On the other hand, business credit cards come with interest-free days and rewards on purchases, whereas business lines of credit don't.