Line of Credit Loans Melbourne – Definition, Perks and Disadvantages

What is a Business Line of Credit?

A line of credit (abbreviated as LOC) is nothing but a standing amount of money which a financial institution can extend to a borrower. The borrower has the privilege to withdraw the available amount of LOC, provided that the borrowed amount never exceeds the maximum limit. In other words, LOC refers to a specified amount of standing credit which a borrower may draw at any time. The borrowed money needs to be paid back within a specific time frame, at a specific interest rate. Thus, LOC allows businesses to easily borrow the required funding, pay it back, and borrow it again (if required).

Unlike a loan, here, the interest is calculated only on the actual amount of borrowed money. For example, if you have a LOC limit of $20k, but you have withdrawn only $5k, then the interest will be charged on $5k (i.e. the actual amount of withdrawn money on LOC).

How Does Line of Credit Help Businesses and Which Types of Businesses Are Suited to Getting It?

In general, line of credit loans are suitable for all types of businesses (especially for small businesses). Poor handling of cash flow or insufficient funding is a common problem for small-sized businesses. Luckily for them, LOC will be one of the most suitable and ideal solutions to ensure sufficient cash flow at the critical times. In fact, LOC is something that every business should ideally have in order to ensure a proper cash flow which is crucial to fulfilling business-oriented goals and growing the company.

Unlike the traditional loan system, that offers you a lump sum amount of cash to be paid back at a variable/fixed interest rate over a specified timeframe, the LOC lets you draw and use the available funds only when you need them. Consequently, this process grants you a better control over your finance. Additionally, you’re only required to pay the interest on your actual borrowed amount.

Also note, LOC is commonly termed as revolving credit. It helps you continually access the available funds, enables a greater control over your business finance, and offers you the freedom to easily take growth-driven decisions.

Major Perks/Benefits of LOC

  • Instant Cash: With LOC, you can easily get instant cash (as per the available limit) from any financial institution.
  • Flexible: Unlike a business loan, a line of credit lets you draw and access money only when you need it. This flexibility enables you to easily and efficiently deal with the occasional cash flow problems that may hinder/impact your business growth.
  • Lesser Interest: As mentioned earlier, you are required to pay interest on the amount that you’ve actually drawn, not the total available amount.
  • Easy Application Process: As a small business owner, if you are eligible for LOC, then you can actually get the funds processed and credited into your account within 1 – 3 days. The application process is simple, easy, and quick.

Some Disadvantages/Limitations of LOC

  • Hard to Get: Your company/business can apply for a LOC only if you have a good trading history, sufficient number of assets, and great credit limit. If not, then it may be really tough and difficult to be eligible for a line of credit.
  • Up-front Fees: In most of the cases, you need to pay some up-front fees in order to obtain the funds.
  • Liability: For any reason, if your business fails, the borrowed amount of LOC needs to be repaid. Otherwise, you will be personally liable to re-pay the debt based on the structure/foundation of your business.

Line Of Credit Interest Rates & Fees

In Australia, the interest rates for the line of credit loans can actually vary (depending on your financial institution). In most of the cases, the interest rate can be something in the range of 5% – 13%. Some up-front fees may be also charged when you’re applying for LOC including application fees and establishment fees etc.

Alternatives Forms of LOC

The typical term loan can be an alternative to LOC where the entire lump sum amount of money is paid to your bank account and you have a specified time-period to repay it back.

Four Well-known Australian Companies That Offer LOC

Now that you’ve already revealed the basic nitty-gritty of line of credit loans, you can start making smart and meaningful choices to growing and financing your business. If you feel that LOC can be a good option for your small-scale or medium-sized business, then you can contact the below-mentioned Australian companies and submit your loan application. Rest assured that each of these lenders is reliable, reputable, and ready to fund your business.

For your reference, here’s the list of companies where you can apply for LOC.


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