Some funding needs are one-off. Others come back every month, every quarter or every season. A business line of credit is built for the second kind: a limit that sits ready, which you draw when the gap opens and repay when the money comes in.
How a business line of credit works
- A lender approves a limit based on your business’s turnover and bank statements.
- You draw from it when you need to — to pay a supplier, cover payroll, or meet a GST return.
- You repay as customers pay you.
- The repaid amount becomes available again.
Because you’re typically only charged on what you’ve actually drawn (check each lender’s structure), a line of credit can cost less over a year than borrowing a lump sum you don’t fully use.
When a line of credit beats a lump-sum loan
| Situation | Line of credit | Lump-sum loan |
|---|---|---|
| Gap comes back every month | ✓ Strong fit | Can mean borrowing repeatedly |
| Seasonal business with a predictable dip | ✓ Strong fit | Works, but may sit idle |
| One-off purchase (equipment, vehicle) | Possible | ✓ Usually cleaner |
| Unknown amount — “somewhere between $10k and $40k” | ✓ Draw only what you need | Risk of over- or under-borrowing |
| Long-lived asset | Not ideal | ✓ Better matched |
Who uses lines of credit in New Zealand
- Trades and construction firms waiting on progress payments while paying weekly wages.
- Wholesalers and importers paying for stock weeks before it sells.
- Hospitality and tourism operators riding summer peaks and winter troughs — Queenstown, Rotorua, the Coromandel and the Bay of Islands all have strong seasonality.
- Professional services firms with a few large clients on 30–60 day terms.
- Agricultural contractors whose income arrives in harvest and baling seasons.
What lenders look at
Like other unsecured facilities, lines of credit are assessed mainly on:
- turnover — regular deposits over recent months;
- bank statement conduct — dishonours, overdrawn days, reliance on other short-term lenders;
- trading time — usually six months or more;
- credit history — weaker credit is considered.
Decisions are sometimes made the same day when statements can be shared electronically.
Using a line of credit well
A line of credit is only as good as the discipline behind it. Owners who get the most out of one tend to:
- Draw for timing gaps, not losses. If the business loses money every month, a facility only delays the problem.
- Repay as receipts land. Set a habit — every time a big invoice is paid, knock the balance down.
- Plan tax separately. Use the GST & provisional tax planner to work out a weekly set-aside, and draw on the line only if a return lands in a slow month.
- Watch the limit, not just the balance. Knowing you have headroom lets you take on work with confidence.
Sizing the limit
A useful starting point is your cash conversion gap: how many days of outgoings you fund before customers pay. If your monthly outgoings are $80,000 and customers take 45 days on average to pay, you’re carrying roughly $120,000 of costs at any time. A facility doesn’t need to cover all of that — just the swing between your best and worst months. Our cash-flow gap calculator breaks this down.
Line of credit or property-secured facility?
If you own property and need a larger or longer facility, a property-secured loan from $20,000 up to $1m may do a similar job with different pricing. Your specialist can put both side by side.
Next step
Tell us about your cash-flow pattern in a 60-second enquiry. It won’t affect your credit score. A Loanster lending specialist will call to talk through whether a line of credit, a loan, or a mix of both suits the way your business actually trades.