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Line Of Credit Loan: A Guide On Securing This Loan Type

  • Written by Viw Magazine

Finding the right loan type for your business can be tricky. A traditional type might make the approval process take seemingly forever. 

Thus, you might ask, "Is a line of credit loan for me?"

Here's everything you need to know about the line of credit loan, the advantages it offers, and if it suits your needs.

What are Line of Credit Loans?

A line of credit loan is a type of flexible financing that can help provide access to cash when your business needs it. 

Once you receive the approval to access your equity, it will act like a credit card with a set limit. You can take this out as a lump sum or in smaller portions.

Then, you'll have to handle your repayments and the interest rate to maintain your account. 

Unlike traditional term loans, you only pay interest on the amount you borrow. If you don't take out the full amount, you won't be charged any interest on the remaining amount that you haven't taken. 

Features of Line of Credit Business Loans

Many factors set a line of credit loan apart from other types. They can affect how much a borrower can get. It also affects how much you would have to repay.

These features make a line of credit loan distinct.

Flexible Line

If your credit limit is approved, how you access your credit facility depends on you.

You can withdraw all the money at once or as you see fit. Fixed agreements do not bind you.

Repayment is also flexible if you have the credit to cover the loan. You can even make extra repayments to keep your credit up.

Interest Rate and Other Fees

You might know how a business term loan has a specific interest rate, making them more predictable.

However, a line of credit can often be compared to a variable-rate business loan, which can shift depending on the value.

It can therefore be challenging to predict the fees, especially if you have an extended loan term.

On top of interest, you'll also have to take note of other fees, like the establishment fee and direct debit.

Be careful handling your account and promptly pay for the interest rate and other fees.


A line of credit is a common way of refinancing any existing business loan you might have.

It can provide easier access to money with a more flexible repayment scheme.

While it can be an advantage for some who need to borrow money quickly, it can also have disadvantages, discussed later.


This loan acts much like a credit card. You control your account and can purchase or spend when you want.

The limit can be a way to save the money in your account and control how funds flow.

How Does a Line of Credit Loan Work?

The lender will provide you with a set limit to spend accordingly. You can choose how to take these funds out.

Some lenders can make it more manageable by offering a direct debit. It ensures you always have a minimum payment and add to it as needed.

How to Secure Line of Credit Loans?

Securing this type of loan depends on your relationship with your bank and credit rating.

You must meet your lender's standards for an approved line of credit.

While there is general criteria such as being of legal age with a minimum business turnover, it can still depend on who you borrow from.

You must also show that you meet their minimum credit score for approval.

Additionally, you may have to make additional payments, like an annual fee, to keep your line up once you get an approved limit.

Benefits of a Line of Credit Loan

While it's uncommon compared to other types, some rely on their credit line to manage cash flow effectively. 

These are the benefits of a line of credit loan.


Your line of credit has more flexibility compared to your traditional term loans.

You can easily use the money for different circumstances, from upgrading your property to business investments etc. 

Easy Access

A line of credit can help you efficiently access your credit facility through services such as online banking.

Money can be transferred to your account upon request as long as it's within your limit.

Interest Rates 

You wouldn't have to pay the entire credit limit to keep it up. Any extra repayments can be credited back to you accordingly.

As long as you retain a good credit line and pay interest accordingly, it should be easy to handle and quick to transact.

The Downsides of Lines of Credit

While a line of credit can be advantageous for some businesses, it can also have a few downsides.

The most common are variable interest rates. The interest rate of this loan can be unpredictable and can change without prior notice. You may need to pay extra to settle all the additional fees.

Unsettled interest can also lead to more debt. If you can't pay for your outstanding balance on time, the interest rates can raise your balance.

It could make juggling your funds more complicated. It could result in needing to refinance your loan constantly.

It could also affect your credit rating, if you can't make the repayments on time. 


You might have more questions about how a line of credit loan can benefit you.

We've gathered the most common questions to help you with your research.

How Can I Increase My Line of Credit Limit?

Every case is different since turnover, budget, and expenses vary from business to business. 

We recommend settling repayments on time and cultivating a positive relationship with your bank.

That way, they can guide you to save money better and properly handle finances for a better credit limit.

How Do I Know if I'm Eligible for a Line of Credit?

These are the basic requirements for a line of credit loan:

  • 18 years old
  • Minimum monthly turnover (the exact amount required varies from lender to lender) 
  • Permanent resident of Australia
  • Reasonable credit history

Lenders may request additional documents to show your credibility.

How Is a Line of Credit Different From Other Loans?

Other loans have the borrower receive their money in full. Then, they will repay the loan through instalments based on the agreed loan term.

On the other hand, a line of credit will set a specific credit limit for the borrower, like a credit card. Their repayment is more flexible and will depend on how much of the loan they spend.


A line of credit can be a great way to finance essential business matters, especially in the short term.

However, knowing if you can manage it before applying for a new loan is essential.


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