Quick answer
A business line of credit is an approved limit your business can draw on, repay and draw again, paying interest only on what's used. In New Zealand it's slower to set up than a one-off fast loan, but once in place it's the closest thing to instant money: you can draw funds within your limit when a gap appears. It suits businesses with recurring cash-flow gaps rather than one-off costs.
Key points
- Draw, repay and redraw within an approved limit.
- Slower to set up, near-instant to use once approved.
- Best for recurring gaps: wages, stock cycles, slow-paying customers.
- There may be a cost to keep the limit open even when you're not using it.
- Structure
- Revolving limit
- Interest
- On the amount drawn
- Speed to use
- Near-instant once set up
- Best for
- Recurring cash-flow gaps
Why is a line of credit on a fast-funding site?
It might seem odd. A line of credit is one of the slower products to arrange, because the lender is approving an ongoing limit rather than a single advance. But it earns its place because of what happens afterwards. Once it’s set up, a line of credit is the fastest money most businesses can get: you log in, draw what you need within the limit, and it’s in your account.
That’s why we tell owners the best time to arrange a line of credit is when they don’t need it. The worst time is the morning payroll is due.
How does a business line of credit work?
- Approval. The lender assesses the business — usually bank statements, sometimes financial statements for larger limits — and approves a maximum limit.
- Draw. You draw funds when you need them, up to the limit.
- Interest on use. You pay interest only on the amount drawn, for the time it’s drawn.
- Repay. Repayments reduce the balance and free up the limit again.
- Redraw. Use it again next time a gap appears.
Some facilities also charge a fee to keep the limit open, whether you draw or not. That cost is worth knowing before you pick a limit size: a bigger limit you never use can cost real money.
What gaps does a line of credit fill best?
| Gap | Why a line of credit fits |
|---|---|
| Payroll before customer payments land | Draw for a week or two, repay when invoices are paid |
| PAYE and GST timing | Small employers pay PAYE by the 20th of the following month; a short draw can smooth a lumpy month |
| Seasonal stock build-up | Draw before the season, repay as stock sells |
| Supplier early-payment discounts | Pay early, capture the discount, repay from sales |
| Unexpected repairs | A cushion for surprises without a fresh application |
The common theme is a gap that’s short and recurring. A line of credit is a poor home for a large, long-term need such as buying a business or clearing a big tax debt over a year — a term loan or private mortgage loan is usually a better fit for those.
How does a line of credit compare with other fast options?
| Line of credit | Short-term loan | Invoice finance | Overdraft | |
|---|---|---|---|---|
| Setup speed | Moderate | Fast | Moderate | Bank-dependent |
| Speed once set up | Near-instant | Apply each time | Fast on new invoices | Instant |
| Cost structure | Interest on drawn amount, plus possible line fee | Fixed total cost | Fees on invoices advanced | Interest on overdrawn balance, plus fees |
| Grows with sales | Not automatically | No | Yes | No |
| Best for | Recurring gaps | One-off costs | Slow-paying customers | Small everyday dips |
For detailed head-to-heads, see line of credit vs short-term loan, overdraft vs line of credit and invoice finance vs line of credit.
How big should your limit be?
Bigger isn’t better if you’re paying a fee on unused limit. A simple way to size it:
- Look back over the last twelve months of bank statements.
- Find the lowest point in each month — the moment the account was tightest.
- Identify the worst month and how far below a comfortable buffer it went.
- Add a margin for growth or one more surprise.
That’s roughly the limit you need. If you use a cash flow forecast — business.govt.nz suggests forecasting as a way to avoid financial trouble and plan for growth — the forecast lowest point does the same job looking forward.
Illustrative example. A Wellington IT services firm invoices monthly but pays contractors fortnightly. Every month there’s a ten-day gap where the account dips. A line of credit sized to cover that gap plus a buffer means the firm draws for about ten days a month and repays as clients pay. It’s paying interest only for those days, not carrying a loan all month.
Know what your gaps look like? Ask for a limit that fits them — it takes about a minute.
What are the downsides?
- It’s easy to drift. A line of credit that never gets repaid has quietly become a term loan, often at a higher cost.
- Ongoing fees. Line or account fees apply whether you use it or not.
- Reviews. Lenders can review and reduce limits, usually when trading weakens — exactly when you’d want them most.
- Setup time. Not the answer if the money is needed today and nothing is in place.
A healthy line of credit regularly returns to zero, or close to it. If yours hasn’t for months, it’s time to look at the underlying cash flow, or convert the stuck balance into a working capital loan with a defined repayment plan.
What do lenders look at for a line of credit?
- Steady turnover in bank statements.
- How the business handles its existing facilities — overdraft use, dishonours, other lenders.
- Time trading.
- For larger limits, financial statements and sometimes property or a general security agreement.
- Your Inland Revenue position, because overdue tax can take priority over other creditors.
Set it up while things are calm
If you’ve read this far, you probably know your gaps keep coming back. The smart move is to arrange a facility before the next one. Applying with us involves no credit check upfront, and your details go to one specialist, not a long list of lenders. Tell us accurately how often your gaps happen and how deep they go, and we’ll suggest a limit — or a better-suited alternative if a line of credit isn’t the right tool. Start your application.
Frequently asked questions
How does a business line of credit work?
The lender approves a maximum limit. You draw money when you need it, up to that limit, and pay interest only on the amount drawn. As you repay, the available limit goes back up and you can draw again.
How is a line of credit different from an overdraft?
They're similar in concept. An overdraft is attached to your everyday transaction account; a line of credit is usually a separate facility you draw from into your account. Lines of credit from non-bank lenders can be easier to get than a bank overdraft, though often at a higher cost.
How fast can I get a business line of credit?
Setting one up takes longer than a one-off fast loan because the lender is approving an ongoing limit. Once it's in place, drawing funds is typically quick — which is the whole point.
Are there fees if I don't use the line of credit?
Often, yes. Many facilities charge a line fee or an account-keeping fee on the limit, whether you draw or not. Ask about these costs before you choose a limit size.
Can I use a line of credit to pay Inland Revenue?
You can, but a line of credit is best for short, recurring gaps. A large tax debt that will take months to repay may be better handled with an instalment arrangement or a term loan.