Finance question
Should my business use a line of credit or a term loan?
It depends on whether the cash need cycles. A line of credit suits uneven timing, such as seasonal wages, stock before a peak or slow-paying customers, because you draw, repay and draw again. If the balance never falls, a term loan is usually cheaper and cleaner. Property security can lift the limit well above the unsecured caps, subject to lender assessment.
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The short answer
Match the product to how the money moves
A business line of credit is a standing limit on your account. You pay interest only on what you draw, and the limit is there again when you repay. A term loan is a lump sum repaid over a fixed period. If cash goes out and comes back inside a few weeks, a line fits. If you are funding something that will not come back, like equipment or a refurbishment, a term loan matches the use. A limit that sits fully drawn for months is read as a loan the business cannot repay, and renewal at the next review becomes harder.
Our business line of credit guide shows where the limits sit. Unsecured limits are capped by the lender: $50,000 at Great Southern Bank Business+, $200,000 at ANZ GoBiz, $250,000 at Westpac and CommBank, and about $300,000 at Lumi, above which property backing may be needed. Prospa wants property ownership above $150,000. With property, CommBank shows no top limit on secured overdrafts, and Bank of Queensland lends against residential security up to 80% LVR.
Fees matter as much as the rate, and the guide says to read the fee line first. A 1.70% line fee on a $250,000 limit is $4,250 a year, even if you never draw a dollar. A term loan has no standing fee on unused money. If you own property, a line secured on it usually gives the biggest limit. Ventas is a broker across 40+ lenders and there is no upfront fee to you.
Do you qualify?
What a lender checks on a revolving limit.
Two years of trading
Financials that match lodged BAS and bank statements.
Cash that cycles
The balance should fall back to low levels at least once a quarter.
Security you can offer
Equity in a property lowers the price and lifts the limit.
A clear use
Stock, seasonal wages or slow-paying customers, not a long-term hole.
Line of credit against term loan
Line: pay on what you use
Interest runs on the drawn balance, plus fees on the whole limit.
Term loan: fixed purpose
A set amount over a set term, suited to something that will not repay itself.
Mix the two
A term loan can clear a balance that has stopped cycling.
A worked example
A wholesaler wants $250,000 of working capital for stock ahead of summer. The need cycles, so a $250,000 limit secured on property fits, drawn to about half on average. The line fee on the full limit at Westpac's published 1.20% is $3,000 a year, against $4,250 at CommBank's 1.70%. If the balance had stopped falling, a term loan would be cleaner. Illustrative only.
Common questions
Frequently asked questions
When is a term loan better than a line of credit?
When the money funds something that will not come back, or when the balance never falls. A line that stays fully drawn is usually dearer than a term loan and harder to renew.
How much can I get on an unsecured line of credit?
Caps vary by lender: $50,000 at Great Southern Bank Business+, $200,000 at ANZ GoBiz, $250,000 at Westpac and CommBank, and about $300,000 at Lumi.
Do I pay fees on the whole limit?
Often yes. Westpac charges 1.20% a year of the total limit on its secured overdraft and CommBank 1.70% on the higher of limit or balance, so a $250,000 limit costs $4,250 a year at 1.70%.
Does property security help?
Yes. It lifts the limit above unsecured caps and moves the price. The cost is that the lender can call on your property if the business cannot repay.