Quick answer
A business line of credit is a revolving limit you can draw on, repay and draw on again, paying interest only on what you use. In New Zealand, unsecured credit lines are usually sized on turnover and bank statements. The real speed advantage comes from setting it up before you need it: once the limit is approved, drawing funds can take minutes rather than days.
Key points
- Draw, repay and redraw within an approved limit.
- Interest only on the amount drawn.
- Best arranged before the cash crunch, not during it.
- Suits uneven income and recurring short gaps.
- Typical limit
- $5,000 to $500,000 unsecured
- Security
- Usually unsecured with a director guarantee
- Speed
- Same-day funding possible for smaller unsecured amounts
- Purpose
- Business purposes only
Most funding gets arranged in a hurry. A supplier wants paying, a customer is late, a GST bill lands in the same week as wages. A business line of credit flips that around: you do the paperwork once, while things are calm, and the money sits there until you need it.
How a revolving facility works
You’re approved for a limit, say $80,000. You draw $25,000 to cover a stock order, so you pay interest on $25,000 only. As customers pay, you repay the line, and the $80,000 becomes available again. There’s no new application each time.
That makes a credit line different from a term loan, where you receive one lump sum and pay it down over a fixed schedule. It’s closer to a buffer than a loan.
Why it’s the fastest funding there is
Once the limit exists, drawing on it can be done online in minutes. In practice, the fastest money any business can access is money that was approved last month. That’s the main reason to set up a line before you need it.
Setting the facility up still involves an assessment. Lenders look at:
- Six to twelve months of business bank statements.
- Average monthly turnover and how much it swings.
- Existing debts, leases and IRD arrangements.
- How long the business has traded.
- The directors’ credit history.
The establishment process for an unsecured line is similar to an unsecured loan. Same-day funding is possible for smaller unsecured amounts when statements can be linked straight away and directors sign online.
When a credit line fits
A line suits businesses whose cash comes in unevenly but reliably:
- Seasonal businesses. A Queenstown tour operator who earns most of the year’s revenue in summer and ski season, but pays rent and staff all year.
- Businesses paid on terms. Wholesalers, contractors and manufacturers waiting 30 to 90 days for customers.
- Stock-heavy businesses. Retailers buying ahead for Christmas, or hospitality venues stocking up before a long weekend.
- Tax timing. Businesses that want a buffer for provisional tax and GST dates without draining operating cash.
It suits less well where the need is a one-off, large purchase. A building, a business or a piece of machinery belongs on a matching term loan or equipment finance.
What it costs, in plain terms
We don’t publish rates, because they depend on the business and the lender. What we can say is how credit lines are usually priced:
| Cost | How it works |
|---|---|
| Establishment fee | Charged when the facility is set up |
| Interest | Charged only on the drawn balance |
| Line or limit fee | Some lenders charge a fee on the full limit, used or not |
| Draw fees | Some charge per drawdown |
| Early closure | Check whether closing the line early carries a fee |
Ask for a total-cost example in dollars: what would it cost to draw a set amount for 30 days? That’s the easiest way to compare one facility with another.
An illustrative example
A craft brewery in Nelson brews to order for bars and supermarkets, which pay on 45 to 60 day terms. Malt, hops and cans have to be paid for up front. The owner sets up a $100,000 unsecured line in a quiet month.
In November, ahead of the summer rush, they draw $70,000 for ingredients and packaging. Through January, as invoices are paid, the balance drops to $15,000. When a big hospitality chain places a large order in February, there’s already $85,000 available, with no new application needed.
Keeping the limit healthy
Lenders review credit lines from time to time. To keep your limit, and ideally grow it:
- Run all takings through one business account.
- Avoid dishonoured payments; keep a buffer above scheduled debits.
- Repay drawings as cash comes in rather than sitting at the limit.
- Keep GST and PAYE filings up to date.
- Tell the lender early if something changes, such as losing a major customer.
Line of credit or invoice finance?
If the main reason you’re short is customers taking too long to pay, invoice finance can unlock cash tied up in those specific invoices. A line is broader: it covers any short gap, not just debtors. Some businesses use both.
Is it the right route?
If you’re not sure whether a credit line, a term loan or something secured will land fastest for you, run your numbers through the funding speed finder.
Set it up before you need it
Asking what’s possible doesn’t touch your credit file, and your enquiry isn’t sprayed around a stack of lenders. A real person reads it, tells you what limit is realistic and calls you to talk it through. Accurate answers mean the first offer is one that can be approved. Start your enquiry.
Frequently asked questions
How is a line of credit different from an overdraft?
They work in a similar way. A bank overdraft is attached to your transaction account, while many non-bank credit lines sit separately and you transfer funds across when needed. Non-bank lines are often quicker to set up and less dependent on property.
Do I pay anything if I don't use it?
Some facilities charge an establishment fee or a small ongoing line fee even when nothing is drawn. Ask for every fee in dollars before you sign so you can compare them properly.
Can the lender reduce my limit?
Yes. Most facilities let the lender review the limit, especially if turnover falls or the account shows signs of stress. Keeping the account well run protects the limit.
Is a line of credit good for buying equipment?
Not usually. Long-lived assets are better funded with equipment finance over a matching term. A credit line is designed for short, recurring gaps.