A business line of credit is one of the most flexible ways to manage uneven cash flow. Instead of borrowing a lump sum, you’re approved for a limit you can draw on whenever you need to — and you only pay interest on the portion you actually use. When you repay, the funds become available again, like a revolving door of working capital.
For trades and contractors — where a big materials bill can land weeks before the progress payment does — that flexibility is the whole point. This guide explains how a line of credit works, what it costs, and when a term loan or invoice finance might serve you better. It is written for tradies first, but we arrange working-capital finance for all kinds of Australian businesses.
What is a business line of credit?
A business line of credit is a pre-approved, revolving credit limit. You can withdraw any amount up to the limit, repay it, and draw again — repeatedly — without reapplying each time. It sits between a term loan (a fixed lump sum repaid on a set schedule) and an overdraft (linked to your trading account), and is designed for ongoing, unpredictable working-capital needs.
How a business line of credit works
- You’re approved for a limit based on turnover, trading history and (for secured facilities) any assets offered.
- You draw funds as needed — for materials, wages, a tax bill or a slow month.
- Interest accrues only on the drawn balance, not the whole limit.
- You repay and the limit is restored, ready to use again.
Secured vs unsecured lines of credit
| Secured | Unsecured | |
|---|---|---|
| Backed by | Property or business assets | No specific security (relies on trading strength) |
| Typical limit | Higher | Lower |
| Typical cost | Lower rate | Higher rate for the added risk |
| Approval speed | Slower (valuation) | Faster |
| Best for | Larger, established businesses | Speed and flexibility without tying up assets |
What a line of credit typically costs
Expect an interest rate on the drawn balance, and often a facility or line fee to keep the limit open. Because this is commercial lending, it isn’t quoted as a consumer comparison rate — pricing depends on your turnover, security and credit profile, and any figures here are general examples subject to lender assessment and change.
When a line of credit is the right tool — and when it isn’t
Reach for a line of credit when: your cash-flow needs are ongoing and hard to predict; you want funds on standby without paying for money you’re not using; or you regularly bridge the gap between paying suppliers and getting paid.
Consider an alternative when: you need a single large lump sum for a defined purchase (a term loan or equipment finance is usually cheaper); or your cash-flow gap is specifically slow-paying invoices — in which case invoice finance can be a better structural fit.
Line of credit vs the alternatives
| Line of credit | Term / unsecured loan | Invoice finance | |
|---|---|---|---|
| Structure | Revolving limit | Fixed lump sum | Advance against invoices |
| Interest on | Drawn balance only | Full loan amount | Fee per invoice |
| Best for | Ongoing, variable needs | A defined one-off purchase | Slow debtor payments |
| Repayment | Flexible | Set schedule | On customer payment |
Use our business loan calculator to compare repayments on a term-loan option before deciding, or read our guide to unsecured business loans.
How Tradie Finance helps
As brokers, we compare line-of-credit and working-capital facilities across our lender panel and match the structure to how your business actually earns and spends. Fast decisions, less paperwork, and a limit sized to your real cash-flow cycle — not a one-size-fits-all box. Apply now and a broker will review your options, or see the full business finance range.
Related reading: Invoice Finance · Unsecured Business Loans · Low-Doc Business Loans for Tradies · Chattel Mortgage
Frequently asked questions
Do I pay interest on the whole limit?
No — you pay interest only on the amount you’ve drawn. Undrawn funds sit on standby, though a facility fee may apply to keep the limit open.
What’s the difference between a line of credit and an overdraft?
An overdraft is attached to your trading bank account and is best for short, occasional shortfalls. A line of credit is a standalone revolving facility, usually with a higher limit and designed for ongoing working-capital needs.
Can I get an unsecured business line of credit?
Yes — unsecured lines exist and are faster to set up because there’s no asset valuation, though they usually carry a higher rate and lower limit than a secured facility.
Is a line of credit better than a business loan?
Neither is better — it depends on the need. A line of credit suits ongoing, variable spending; a term loan suits a single defined purchase. Many businesses use both.
How is a business line of credit approved?
Lenders look at turnover, trading history, cash flow and — for secured facilities — any assets offered. A broker can quickly tell you which lenders suit your profile.
Written and reviewed by the Finance Director at Tradie Finance.
This article is general information only and does not constitute credit or financial advice. Tradie Finance operates under Australian Credit Licence 506065 (Five Tees Pty Ltd). Lending is subject to approval, lending criteria, terms, conditions and fees.