Running a trade business means dealing with cash flow gaps — big jobs that need materials upfront before clients pay, slow winter months, late-paying commercial clients. A business line of credit is one of the most practical tools to bridge these gaps without the rigidity of a fixed loan.

But a line of credit isn't right for everyone. Used well, it saves money and provides genuine flexibility. Used carelessly, it becomes an expensive revolving debt that's harder to get off than a fixed loan.

This guide covers what a business line of credit is, how it compares to other financing options, what it costs, and how to decide whether one is right for your trade business.

What Is a Business Line of Credit?

A business line of credit is a pre-approved borrowing facility — like a credit card for your business, but typically with a higher limit and lower interest rate. You're approved for a maximum amount (say, $50,000) and can draw on it any time up to that limit. You only pay interest on what you've actually drawn down, not the full facility.

Key features:

  • Revolving: Pay it back, and the funds are available again
  • Flexible draw: Take $5,000 this week, $20,000 next month — as needed
  • Interest on drawn amount only: Unlike a term loan where you pay interest on the full amount from day one
  • Flexible repayment: Some facilities have minimum monthly repayments only; others require interest-only payments
  • Secured or unsecured: Larger facilities may require property as security

Line of Credit vs Business Overdraft vs Term Loan

These three products are often confused. Here's how they differ:

  • How you access funds — Draw when needed — Automatically when account goes negative — Lump sum at start
  • Interest charged — Only on drawn amount — Only when in overdraft — On full amount from day 1
  • Repayment — Flexible (minimum payments) — Repay when cash available — Fixed monthly installments
  • Limit — Set at approval — Linked to transaction account — Fixed loan amount
  • Typical limit — $10k–$500k — $5k–$100k — $10k–$5m+
  • Best for — Planned/flexible draws — Unexpected shortfalls — Large capital purchases
  • Rate — 8–15% p.a. typical — 10–18% p.a. typical — 5–12% p.a. typical
  • Security — Often property for large limits — Can be unsecured — Often secured by asset

The practical difference:

  • If you regularly have tight weeks but good months, an overdraft handles small, unpredictable shortfalls automatically
  • If you need to draw specific amounts for materials or wages during a large project, a line of credit is more structured
  • If you're buying a major piece of equipment or a vehicle, a term loan with fixed repayments is more appropriate

Many trade businesses benefit from having both a line of credit and a term loan — they serve different purposes.

Common Uses for a Trade Business Line of Credit

Materials Upfront for Large Jobs

If you've won a $200,000 commercial fitout contract and need to buy $60,000 in materials before work starts — but the first progress payment isn't due for 30 days — a line of credit bridges the gap. Draw $60k, buy materials, start work, receive progress payment, repay.

Wage Payments During Slow Periods

December-January is notoriously slow in construction. Commercial projects are on hold, residential clients are away. But your team still gets paid. A line of credit covers wages during slow periods and is repaid when invoices are paid in February.

Tender Bonds and Security Deposits

Some commercial clients require a security deposit or bank guarantee before work commences. A line of credit facility can support these requirements without locking up all your operating cash.

Emergency Equipment Repairs

Your $80,000 crane truck needs an urgent $8,000 engine repair or it's off the road for three weeks. Line of credit drawn, repair completed, truck back at work, debt repaid from ongoing revenue.

Supplier Early Payment Discounts

Some suppliers offer 2–3% discounts for early payment. If you can draw on your line of credit to pay early, capture the discount, and repay within 30–60 days, the net cost of the credit may be lower than the discount value — essentially borrowing at a profit.

How to Qualify for a Business Line of Credit

Lenders assess line of credit applications primarily based on business cash flow — your ability to service the facility over time. Requirements typically include:

ABN and trading history: Most lenders want 1–2 years of trading history. Under 12 months and options narrow significantly.

Revenue evidence: Bank statements showing regular income — typically 6–12 months of business bank statements. For lenders requiring full documentation, 2 years of tax returns.

Cash flow assessment: Lenders look at your average monthly revenue, existing debts, and whether the facility is serviceable given your business cycle.

Credit history: Both business and personal credit is checked. Defaults, late payments, or existing high debt reduces your approval chances and increases the rate.

Security: Unsecured lines of credit have lower limits (typically $50,000–$100,000 maximum). If you own property with equity, you can access larger secured facilities at lower rates.

The Cost of a Business Line of Credit

Interest Rates

Business lines of credit are more expensive than term loans because of their flexibility:

  • Unsecured lines: 8–18% p.a. (varies significantly by lender and risk profile)
  • Secured lines (property backed): 6–10% p.a.
  • Bank overdrafts: 10–18% p.a.
  • Non-bank fintech lenders: Can be higher — always read the comparison rate

Interest is calculated daily on the drawn balance. A $50,000 facility drawn down to $30,000 at 12% p.a. costs approximately $9.86 per day.

Establishment Fees

Most lenders charge a one-off establishment fee:

  • $150–$500 for small unsecured facilities
  • $500–$2,000+ for larger secured facilities

Some online lenders waive establishment fees but charge higher interest rates.

Ongoing Fees

  • Annual facility fee: $200–$500 typically, even if you don't draw on the facility
  • Transaction fees: Some lenders charge per draw
  • Non-utilisation fees: Rare, but some facilities charge a fee on the unused portion

How Interest Adds Up (Example)

$30,000 drawn for 60 days at 12% p.a.:

  • Daily rate: 12% ÷ 365 = 0.0329%
  • Daily interest: $30,000 × 0.0329% = $9.86
  • 60 days: $9.86 × 60 = $591.78 total interest

For a $30,000 materials purchase that enables a job returning $80,000, this cost is minimal.

The Best Lenders for Tradie Lines of Credit

Major Banks (ANZ, NAB, CommBank, Westpac)

Best for: Established businesses with 2+ year history, property security available
Advantages: Lower interest rates, larger limits, integrated with business banking
Disadvantages: Slower approval, stricter eligibility, more documentation required
Typical limits: $20,000–$1m+
Rates from: 6.5–12% p.a. secured

Non-Bank Lenders (Prospa, Lumi, Moula, Capify)

Best for: Tradies who need quick approval, have shorter history, or can't offer property security
Advantages: Fast online applications (often same-day approval), flexible eligibility
Disadvantages: Higher interest rates, lower limits, shorter terms
Typical limits: $10,000–$150,000
Rates from: 12–30%+ p.a.

Non-bank lenders often advertise simple weekly repayments rather than interest rates, which can obscure the true cost. Always ask for the comparison rate or calculate the annualised interest cost before signing.

Invoice Finance (for Cash Flow Specifically)

If your cash flow problem is specifically about waiting 30–60 days for clients to pay invoices, invoice finance (also called debtor finance or factoring) is an alternative to a line of credit. You "sell" your outstanding invoices to a finance company and receive 70–90% of the invoice value immediately. When the client pays, you receive the remainder minus the fee.

Invoice finance can be more appropriate than a line of credit when:

  • Your cash flow issue is specifically about slow-paying clients
  • You have significant outstanding receivables (over $50,000)
  • Your clients are creditworthy businesses (not individuals)

Costs are typically 2–4% of invoice value for 30 days, plus establishment and management fees.

When a Line of Credit Is the Wrong Tool

Despite its flexibility, a line of credit is not always the right solution:

Capital equipment purchases: Buy a ute, trailer, or major equipment with a term loan or chattel mortgage — lower rate, structured repayment, and usually better tax treatment.

Permanently plugging a structural cash flow problem: If you're always drawing on the line and never repaying, you have a deeper business problem — likely underpricing, overheads that are too high, or slow-collecting debtors. A line of credit used as permanent working capital becomes expensive.

High-rate non-bank facilities for anything other than short-term use: Borrowing at 25% p.a. from a non-bank lender for more than 60–90 days is very expensive. Use these products for bridge gaps only, not as working capital.

When you haven't explored alternatives: Before a line of credit, consider asking suppliers for extended payment terms, asking clients for advance payment or progress payments, using a fuel card with 30-day terms, or improving your debtors collection process.

Tax Treatment of a Line of Credit

Interest paid on a business line of credit is fully tax deductible as a business expense — provided the funds are used for business purposes. If you draw on the line to pay personal expenses, that portion of interest is not deductible.

Keep records of what each draw was used for, particularly if you mix business and personal use. Most tradies use their line of credit exclusively for business, which makes this straightforward.

The establishment fee may be deductible as a borrowing cost (amortised over the loan period), or possibly immediately deductible if minor. Your accountant will categorise this correctly.

Comparison: Business Credit Options for Tradies

  • Unexpected cash gap, small amount — Overdraft — Automatic, small amounts
  • Materials for a specific large job — Line of credit — Draw exactly what you need, repay on payment
  • Buy a ute or major equipment — Chattel mortgage / term loan — Lower rate, tax advantages
  • Slow-paying commercial clients — Invoice finance — Unlocks cash tied up in receivables
  • Business expansion capital — Business term loan — Larger amounts, structured repayment
  • Emergency small repairs — Business credit card — Quick access, interest-free if repaid monthly

Frequently Asked Questions

Q: Does having a line of credit affect my home loan application?
Yes. Lenders count the full facility limit as potential debt when assessing serviceability, even if you've drawn nothing. A $100,000 line of credit you never use still reduces your home loan borrowing capacity. Consider whether the home loan or the line of credit is more important before applying for both.

Q: Can I get a line of credit with a new ABN?
It's difficult. Most lenders want at least 6 months of trading history, with better options available at 12–24 months. Non-bank lenders are more flexible for new businesses but charge significantly higher rates.

Q: How quickly can I access funds from a line of credit?
Once established, funds can often be drawn within minutes to your nominated bank account. Setting up the facility initially takes 1–14 days depending on the lender and documentation required.

Q: Can I use a personal credit card as a business line of credit?
You can, but it's not advisable. Personal credit cards mix personal and business expenses, have lower limits, and don't contribute to business credit history. A business credit card or dedicated facility is better for every reason — including keeping your tax records clean.