Business Line of Credit - Rates from 7.99%

Secured lines of credit use property or business assets as collateral. This lowers the lender's risk and gives you a lower rate (from 7.99%) and higher limit (up to $500,000). The trade-off is that the lender has a registered charge over your asset.

Unsecured lines of credit require no collateral but carry higher rates (from 9.95%) and lower limits (typically $5,000 to $150,000). Approval depends heavily on revenue, cash flow and credit score. Most non-bank lenders cap unsecured facilities at $150,000 for businesses under $2 million in annual revenue.

For businesses with property, a secured facility almost always delivers better value. On a $100,000 limit with $50,000 average utilisation, the rate difference between 7.99% and 12.95% saves $2,480 per year in interest.

Line of credit interest is calculated daily on the drawn balance and charged monthly. If you draw $40,000 at 9.95% for 20 days, the interest cost is $40,000 x 9.95% / 365 x 20 = $218. If you repay $20,000 on day 10, the second 10 days only charge interest on $20,000.

Beyond the interest rate, watch for these fees: establishment fees (0.5-2% of the limit), monthly account-keeping fees ($10-$30), annual review fees ($200-$500), and unused limit fees (0.25-0.75% per annum on undrawn funds). Not every lender charges all of these. Some non-bank lenders charge zero establishment fees but higher monthly fees.

On a $100,000 facility with 50% average utilisation at 9.95%, your annual interest cost is roughly $4,975. Add typical fees of $660 per year (monthly fee + annual review) and the effective cost is $5,635. That compares favourably to a $50,000 term loan at 8.99% ($2,796 in Year 1 interest) only if your drawdowns are irregular. If you need the full amount permanently, a term loan is cheaper.

A business loan gives you a lump sum at a fixed rate with structured repayments over a set term. A line of credit gives you a limit you draw from as needed with interest only on what's drawn. The right choice depends on whether your funding need is one-off or recurring.

If you know the exact amount and purpose (buying equipment, fitting out premises, hiring staff), a term loan is almost always cheaper. The rate is lower because the lender knows the repayment schedule upfront. On $50,000 over 3 years, a term loan at 8.49% costs $6,698 in total interest. A line of credit at 9.95% with the same average balance costs $14,925 over 3 years because there's no scheduled principal reduction.

Lines of credit work best for variable, recurring needs: covering gaps between invoicing and payment, seasonal stock purchases, or bridging payroll during slow months. The flexibility to draw and repay without reapplying is worth the rate premium when your cash flow is uneven.

All three provide revolving business credit, but with different mechanics, costs and limits.

A business overdraft attaches to your transaction account and activates automatically when your balance goes below zero. Rates are typically higher (from 14.55%) and limits lower ($5,000 to $100,000), but there's no separate drawdown process. It's a safety net, not a funding strategy.

A business credit card offers interest-free periods (typically 44-55 days) on purchases, which no line of credit matches. But credit limits rarely exceed $50,000 and cash advance rates are 20%+. Cards suit frequent small purchases with short payment cycles. A line of credit suits larger, irregular draws where $10,000 to $100,000 moves at once.

For businesses spending $5,000 to $20,000 per month on supplies, a credit card with a 55-day interest-free period saves more than a line of credit. For businesses bridging $30,000+ invoice gaps or seasonal stock buys, a line of credit is significantly cheaper than card cash advances.

Lender requirements vary across our panel, but the common thresholds are: ABN registered for 12+ months, minimum monthly revenue of $5,000 to $10,000, and a personal credit score above 500 (above 600 for the best rates).

Startups with ABNs under 12 months have limited options for unsecured lines of credit. Most non-bank lenders require at least 6 months of trading history with consistent bank deposits. Secured facilities against property are available from 3 months ABN because the collateral offsets the trading risk.

Sole traders, partnerships, companies and trusts can all access lines of credit. The key difference is that sole traders and partners carry personal liability for the full facility. Company directors typically provide personal guarantees, but the company is the primary borrower.

Most lenders require 3 to 6 months of business bank statements showing regular revenue. If your revenue is seasonal (hospitality, agriculture, retail), lenders look at 12-month averages rather than month-to-month figures.

Interest on a business line of credit is fully tax-deductible when the funds are used for business purposes. This applies regardless of whether the facility is secured or unsecured.

On a $100,000 facility with $50,000 average utilisation at 9.95%, annual interest is roughly $4,975. At a 25% company tax rate, the tax deduction saves $1,244 per year. At the 32.5% marginal rate for sole traders earning $120,000 to $180,000, the saving is $1,617.

Fees are also deductible. Establishment fees are deductible over the life of the facility (or in the year incurred if under $100). Monthly account-keeping fees and annual review fees are deductible in the year they're charged. On typical annual fees of $660, the tax saving is $165 to $215 depending on your marginal rate.

If you use the line of credit for mixed personal and business purposes, only the business portion of interest is deductible. Keep clear records of each drawdown's purpose. The ATO can audit and deny deductions for funds used for personal expenses drawn from a business facility.

The most common use is bridging cash flow gaps between invoicing and payment. Australian businesses wait an average of 35 days for invoice payment. If your monthly costs are $40,000 and clients pay on 30-day terms, a $40,000 line of credit covers the gap at roughly $330 in monthly interest rather than chasing early payment discounts or delaying supplier payments.

Seasonal stock purchases are the second most common use. A retailer spending $80,000 on Christmas stock in September can draw down, sell through November-December, and repay in January. Total interest cost at 9.95% for 4 months: $2,653. Without the facility, they either miss the buying window or tie up $80,000 in cash.

Other common uses include: covering payroll during project ramp-up, bridging settlement timing on property or equipment purchases, funding marketing campaigns with delayed ROI, and managing GST or tax payment timing. The common thread is temporary funding needs where the capital is returned within weeks or months.

Your credit limit is tied to revenue. Most lenders offer 10-20% of annual turnover as a starting limit. A business turning over $500,000 per year can typically access $50,000 to $100,000. Showing 12+ months of stable or growing revenue supports a higher limit.

Clean credit history has the biggest impact on rate. A personal Equifax score above 700 with no defaults or late payments in the last 5 years qualifies you for the lowest rates on our panel. Each 50-point drop below 700 typically adds 0.5-1.5% to your rate.

Applying through a broker like Emu Money means one credit inquiry accesses 50+ lenders. Going direct to 3-4 banks means 3-4 credit inquiries, each visible to the next lender. Multiple inquiries in a short period can reduce your score by 20-40 points and signal financial stress to lenders.

If you have property to offer as security, always compare the secured rate against unsecured. On a $100,000 facility, the rate gap between secured (7.99%) and unsecured (12.95%) saves $2,480 per year in interest. Over 3 years, that's $7,440 in savings.