Business Line of Credit: Draw, Repay, Redraw
An approved limit that sits ready for when you need it: draw funds, repay them, and the credit becomes available again. Genuinely flexible — provided you use it with a plan.
- Draw, repay, redraw
- Pay for what you actually use
- Limits up to $200,000
- Fast drawdowns once established
How does a business line of credit work?
A business line of credit is revolving finance: a lender approves a limit — up to $200,000 through Smoko Finance, subject to eligibility, assessment and lender approval — and the business draws from it as needed rather than taking a lump sum. You generally pay finance costs only on what you’ve drawn, not the whole limit, and as repayments reduce the balance, that credit becomes available to draw again. The facility is established once, with assessment led by your latest six months of business revenue, and after that individual drawdowns are typically fast because the checking is already done. It suits recurring or unpredictable needs; a one-off purchase of a known amount usually sits better with a term loan.
Revolving credit, in plain English
A term loan hands you a lump sum, sets a repayment schedule, and ends. A line of credit works differently: the lender approves a limit, and that limit simply sits there, available. Draw on it when a need arrives. Repay as money comes in. What you've repaid becomes available to draw again — which is what "revolving" means. Nothing about the facility forces you to use it; an undrawn line is a standby resource, not a debt.
The pricing principle that makes this attractive: finance costs generally follow the drawn balance, not the approved limit. Use $20,000 of a $100,000 limit and you're paying finance costs on the $20,000. It's one of several structures in the business loans range available through Smoko Finance, with limits of up to $200,000, subject to eligibility, assessment and lender approval.
The cycle in practice
- Establish once. The lender assesses the business and approves a limit. This is the full assessment — revenue, verification, credit information.
- Draw when needed. Move funds to your account when a real need arrives — no new application each time.
- Repay as cash lands. Repayments reduce the drawn balance, and with it what the facility is costing you.
- Redraw next time. The repaid portion is available again. The facility keeps working for as long as it stays open and in good standing.
Line of credit or term loan? The decision in one table
| If this sounds like you | Lean towards | Because |
|---|---|---|
| You know the exact amount, and the need is one-off | Term loan | A lump sum with a fixed schedule is simpler and has a built-in end date |
| Needs recur but you can't predict when or how much | Line of credit | Draw only what each situation requires, only when it happens |
| You're buying an asset — equipment, a fit-out | Term loan | Match a defined purchase to a defined repayment plan |
| You want a buffer against uneven months | Line of credit | Standby availability without carrying debt through the good months |
| You want the discipline of a forced finish line | Term loan | The schedule retires the debt whether motivation holds or not |
Plenty of businesses sensibly run both — a term loan for the defined purchase, a line for the unpredictable. If your underlying need is funding day-to-day operations more broadly, the trade-offs are covered on the working capital loans page.
Establishing the facility vs using it
The real work happens once, upfront. Establishment is a full assessment led by your latest six months of business revenue — usually via recent bank statements or a secure read-only bank connection — along with identity and business verification, existing commitments and credit information. What lenders read in that data is unpacked in what lenders look for in bank statements, and the enquiry-to-offer journey is stepped out on how it works.
After establishment, drawdowns are typically fast, because the checking is already done. Two things to know about the ongoing side: facilities are generally reviewed periodically, so a limit isn't guaranteed forever — lenders can adjust terms at review, particularly if the business's trading changes. And cost structures vary: some lenders charge establishment or ongoing facility fees alongside costs on the drawn balance. All of it is set by the lender for your circumstances, which is why we publish no amounts — ask any lender for the full fee schedule and the total cost of a typical draw before you accept.
The discipline a credit line demands
Here's the honest part. An open limit can start to feel like income, and that feeling is the main way these facilities go wrong. A line that's drawn to its ceiling and stays there isn't flexible finance any more — it's a term loan with no end date, quietly costing money every week. Three habits keep a facility healthy:
- Draw for things that earn or protect income — stock, a job's upfront costs, a repair — not for spending that would worry you on a statement.
- Attach a repayment plan to every draw — know which incoming money clears this balance, and roughly when.
- Let it rest at zero sometimes. A facility drawn each quiet stretch and cleared each busy one — the classic seasonal cash flow pattern — is the structure working exactly as designed.
If a balance has sat unmoved for months, treat that as a signal: either restructure it into a term loan with a schedule, or fix the cash-flow issue underneath it. Flexibility is only cheap when it's actually used as flexibility.
Frequently asked questions
Do I pay anything while my line of credit sits unused?
Finance costs generally apply only to the drawn balance, so an unused line costs little or nothing in interest-style charges — but some lenders charge establishment or ongoing facility fees for keeping the limit available. Fee structures are set by each lender, so ask for the full schedule before accepting.
How fast can I draw funds once the facility is set up?
Typically quickly — the full assessment happened at establishment, so a drawdown doesn’t restart it. Establishing the facility itself commonly takes a few business days for a complete application, and after that, moving funds is usually a same-day or next-day exercise depending on the lender and banking cut-offs.
Is a business line of credit secured or unsecured?
The facilities arranged through Smoko Finance are unsecured — no specific property or asset is pledged. Lenders may still require a director’s guarantee or attach other conditions to the facility, so read the offer terms closely before you accept.
Can my credit limit change after the facility is established?
Yes, in both directions. Lenders generally review facilities periodically, and limits can be increased on request if trading supports it — or reduced if revenue weakens or the account is strained. A limit is an assessed position, not a permanent entitlement, so keep bank data healthy.
What’s the most common mistake businesses make with a credit line?
Letting the drawn balance become permanent. A line maxed out and left there is effectively a term loan without an end date, costing money continuously. If a balance hasn’t moved in months, restructure it or clear it — and treat the underlying cash-flow issue as the real problem.
Does a line of credit suit a business with seasonal income?
It’s one of the best-matched structures for seasonality: draw through the quiet stretch, repay and clear the balance through the peak, and the facility sits ready for next year. Lenders will want your recent revenue to show a genuine seasonal rhythm rather than a decline.
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