Cash flow in most small businesses isn’t a straight line. A Queenstown tour operator earns heavily in summer and winter and thinly in the shoulders. A Napier orchard contractor pays pickers weekly and gets paid monthly. A Wellington design studio waits on government clients who pay on the 20th of the following month. For patterns like these, a lump-sum loan is a clumsy tool. A line of credit fits better.
How does a business line of credit work?
- A lender approves a limit based on your turnover and bank statements.
- You draw funds when you need them, in whatever amounts suit, up to the limit.
- You repay as cash comes in, which frees the limit up again.
- You’re generally charged on what you’ve drawn, plus any facility fees set out in your agreement.
It’s revolving: the same limit can be used many times while the facility is open.
Line of credit vs term loan vs overdraft
| Line of credit | Term loan | Bank overdraft | |
|---|---|---|---|
| Money arrives | When you draw | All at once | Available in your account |
| Best for | Recurring gaps | One-off purchases | Everyday swings |
| Who offers | Non-bank and bank lenders | Both | Banks |
| Typical basis (non-bank) | Turnover | Turnover or property | Bank’s credit assessment |
| Main risk | Permanent reliance | Over-borrowing for the purpose | Limit reduced at review |
Who uses one well?
- Seasonal businesses that need to carry costs before the season pays.
- Contractors and trades who pay materials and wages before progress claims are paid.
- Wholesalers and importers timing stock purchases against sales.
- Service businesses with slow-paying clients where invoice finance feels too heavy.
The discipline a line of credit needs
The best feature of a line of credit, that it’s always there, is also its biggest risk. Some simple rules:
- Watch the low point. If the balance never returns to zero (or close) over a trading cycle, the facility has become permanent funding and the business may need a different solution.
- Match it to short-term needs. Don’t use it to buy long-life assets; that’s a job for a term loan or asset finance.
- Keep tax separate. Using the line to pay GST each period can hide a structural problem. If tax has fallen behind, look at IRD options deliberately.
What does a lender look for?
Non-bank lenders offering lines of credit usually want to see:
- trading for around 6 months or more;
- regular deposits into a business bank account;
- manageable existing commitments;
- reasonable account conduct (few dishonours);
- no unmanaged tax arrears.
Weaker credit is considered. Current cash flow tends to matter more than past history.
What does it cost?
Pricing depends on the business, the limit and the lender. We don’t publish rates or fee tables, because the right answer depends entirely on your situation. We look for the sharpest facility available and make sure you understand all the charges before you sign.
Getting one
We arrange business lines of credit for businesses usually trading 6+ months, sized on turnover and bank statements. Enquiring takes about 60 seconds and doesn’t affect your credit score. A lending specialist will call to talk through whether a line of credit, a term loan or something else fits your cash flow pattern.