Loan expert discussing with client about a line of credit business loan

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Loan expert discussing with client about a line of credit business loan

Unlocking Business Potential: Line of Credit Business Loans

Section Key Takeaway
Introduction to LOC Business Loans
LOC provides a flexible credit limit for businesses. Allows drawing funds as needed, offering a flexible solution for fluctuating cash flow.
Benefits for Business
Flexibility to manage cash flow. Handle unexpected expenses. Capitalise on opportunities without multiple loan applications.
Eligibility Criteria
Assessed on credit history, revenue, profitability, and years in operation. Stronger credit score and financial results lead to better approval chances. Non-bank lenders focus on recent revenue trends and cash balances.
Application Process
Banks require extensive documentation and possibly collateral. Non-bank lenders offer a quicker process, focusing on business bank statements for cash flow analysis.
Choosing the Right Lender
Decision based on factors like interest rates, fees, loan terms, policy, and credit profile. Bank applications take longer, non-bank lenders are quicker. The choice is influenced by the business needs and qualification criteria.
Case Study
Example of a $300k unsecured LOC from a non-bank lender. Non-bank LOCs can complement bank overdrafts. No-doc application, quick settlement.
Managing Your LOC
Use LOC for short-term needs and focus on business growth. Discipline is required as interest is charged only on the amount used.
LOC is a powerful tool for managing cash flow and seizing growth opportunities. Effective use of LOC requires understanding and strategic management. Consult an expert for tailored advice.

Credit and cash flow support is crucial for growth and operational efficiency. A Line of Credit (LOC) business loan stands out as a versatile tool supporting businesses who bill on invoice, need to pay wages or cover input costs before they’re able to provide their product or service. This article delves into the essentials of LOC business loans in Australia, highlighting benefits, eligibility criteria, application processes, and effective management strategies to maximise this financial product’s potential.

Introduction to Line of Credit Business Loans

A Line of Credit (LOC) business loan provides a predetermined borrowing limit to businesses, allowing them to draw funds as needed up to the credit limit. Unlike traditional loans with a fixed lump sum disbursement, LOCs offer a flexible financing solution, adapting to the fluctuating cash flow needs of a business.

Types of Lines of Credit Available to Business

  • Unsecured Overdrafts – an unsecured overdraft is a line of credit given to a business where the company does not need to provide security to guarantee the credit line. This type of credit is typically granted based on the business’s creditworthiness and financial history. 
  • Secured Overdrafts – A secured overdraft is similar to an unsecured overdraft, except the lender will take a mortgage over property as security. The feature of the property security reduces the risk for the lender, which typically results in lower interest rates and higher limits compared to unsecured overdrafts.
  • Trade Finance – is for the purchase of material supplies.  This form of credit helps businesses manage the cash flow gap between the purchase and sale of goods. 
  • Import FinanceImport finance is a type of trade finance specifically related to importing goods. This line of credit helps importers manage the cash flow gap between receiving the goods and paying their suppliers. The finance is typically structured so that repayment aligns with the revenue generated from selling the imported goods.
  • Invoice Finance – also known as debtor finance or factoring, invoice finance is a funding solution where a business borrows money against the amounts due from customers. This type of financing helps businesses improve cash flow, pay employees and suppliers, and reinvest in operations and growth sooner than waiting for customers to pay their invoices.

Benefits of a Line of Credit for Australian Businesses

The primary advantage of a LOC is its flexibility, enabling businesses to manage cash flow efficiently, handle unexpected expenses, and capitalise on investment opportunities without the need for multiple loan applications.

Eligibility Criteria

Lenders typically assess credit history, revenue, profitability, and years in operation. Having a stronger credit score, average cash balance and financial results can improve eligibility and your likelihood of being approved.

Non-bank lenders will place great emphasis on the last 3 month trend of your revenue and your average cash balance.  Having evidence of personal savings can demonstrate additional liquidity and positively impact your application.

Application Process Explained

If applying for a LOC from a bank the application process involves submitting financial statements, tax returns, statements of positions (which is essentially your personal balance sheet) and possibly property security information to the lender if you don’t qualify for an unsecured line of credit. The process varies between financial institutions but generally requires thorough documentation at all banks.

If you’re applying for a LOC from a non-bank lender the application process can take minutes and is focussed on a read only view of linked business bank statements.  The lender analyses your revenue, expenses, other loan repayments and forms a profile of your cash flow through this analysis.  They’ll seek to ensure there are no or minimal direct debit dishonours and sufficient cash at bank to make repayments.


Man Reviewing Line Of Credit Application Process

Choosing the Right Lender

Choosing the right lender comes down to the intersection of factors such as interest rates, fees, loan terms, lender policy and your credit profile. Understanding that bank line of credit applications will take weeks, whereas non-bank lenders can make a decision within hours – your lender solution is usually governed by the best lender you can qualify for who will settle in a timeframe that meets your business’ needs.  

Case Study: Additional $300k unsecured line of credit (on top of a bank overdraft)

Seeking greater credit support but not wanting to change banks our client came to us believing there wasn’t a solution.

Their business was growing and needed to extend their overdraft to support their expansion.

Their bank wanted to see the results before agreeing to a higher limit.

One of our preferred non-bank offers an unsecured overdraft that can sit behind a bank overdraft.

With no establishment fees, no line or management fees it’s a fee effective solution to extend your credit or keep as a backup.

Limits are available up to $1M with property security and up to $500k unsecured but up to $300k is their sweet spot.

With a no-doc application over the phone time to settlement sorted in 2 days.

Managing Your Line of Credit Effectively

A LOC is designed for short-term financial needs. It’s important to use it in a way that focuses on generating business growth or smoothing out cash flow inconsistencies. Unlike traditional loans, interest is charged only on the amount used, not the entire credit limit. This feature requires disciplined use to avoid accruing unnecessary interest cost​​​​. 

Putting it together

A Line of Credit business loan is a powerful financial tool for Australian businesses seeking cash flow support and the capacity to go after opportunities when they arise. By understanding and leveraging a LOC effectively, businesses can navigate the challenges of cash flow management and seize growth opportunities with confidence.

To get a line of credit for your business,  talk to an expert.

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