Is your business cash flow looking tight this festive season? Do you need quick access to cash? If you answered yes, you are not alone – but there is an answer.

Unfortunately, due to the horrific bushfires, the COVID-19 outbreak and measures taken to contain the virus, this year around 70% of businesses reported a decline in revenue compared to the same time last year¹. No surprises there!

Small businesses were twice as likely as large businesses to record a decline. Those hardest hit were cafes, smaller retailers, restaurants and those in the arts and recreation industries¹.

Government lifelines may not be enough

For some businesses, although the government JobKeeper, SME Guarantee Scheme, instant asset write-offs and the like have been a lifeline, they won’t be enough to see them through the festive season and into the new year.

There are other finance options available, but interestingly only one in 10 businesses sought additional finance more broadly because of the pandemic².

Access to quick cash

A business line of credit is a popular and flexible loan option if you:
• need fast access to cash
• want to choose short term debt
• only want to pay interest on funds being used

What is a business line of credit (LOC)?

A business line of credit works much like a credit card. It gives you access to a sum of money up to an approved limit. Funds are available to withdraw when needed and you only pay interest on the amount you use. With a revolving line of credit, once you repay the amount, you can draw down again, but it is reviewed over time.

Difference between a business LOC, an overdraft and a business credit card

A business LOC may sound a lot like an overdraft, but a business overdraft is generally attached to an existing business transaction account which allows you to extend beyond the account balance up to a certain amount.

Usually business credit cards are unsecured and as a result tend to attract higher interest rates and fees. A business LOC can be secured or unsecured but some lenders may only offer a secured
LOC. This means you may be required to put up assets or equity as collateral for the loan and you will not be able to sell the assets until after the LOC is closed.

It is important to compare lenders, features and fees to find the right one to suit your business – we can do that for you!

Here are a few critical questions answered about a business line of credit

How do I apply for a business LOC?
A finance broker will be able to offer line of credit options from a variety of sources and be able to a recommend the most suitable one for your business. They are also likely to be able to fasttrack your approval if timing is critical.

Who can get a business LOC?
A business with an ABN, GST registration and trading track record can apply. Lenders will require proof of identity along with financial documents.

What is the process for a business LOC?
You can apply for a business line of credit through your finance broker. As part of the application process, lenders will likely want to see your business financials and credit history including bank statements, balance sheet and income statements. We steer businesses through the application process to ensure a seamless process and the necessary information is collected and submitted.

How much can I borrow with a business LOC?
Minimum and maximum amounts apply and vary across lenders, but you can expect a minimum of $2,000 and maximum between $100,000 to $5,000,000.

What type of fees can I expect to pay?
Usually, a business line of credit includes fees such as application and establishment fees. They may also include other fees such as annual charges, transaction or line fees. A line fee, which is often a percentage of the total LOC value, ensures the LOC remains open and accessible.

What is the term?
Terms vary between lender and borrower, are usually short term but can be between 1 month to 30 years.

What are the interest rates?
Average interest rates vary across lenders but are typically between 3% to 13%. They can be fixed or variable. For businesses without a finance broker on their side, finding funds to keep their business afloat may be difficult.

Our clients enjoy access to finance options to suit their needs and business requirements while being guided by our independent advice. If timing is critical, we are also likely to be able to fast-track your approval.

Still not sure a business line of credit is for you? Read our article about the pros and cons or contact our office for a confidential discussion.