What is a Business Line of Credit and How Can It Help My Business?

Updated 20th November 2025

At ScotPac, we specialise in providing customised business finance solutions to help businesses succeed and grow.

Amongst our services, we offer business lines of credit. But what is a business line of credit and how can it help your business?

In this article, we’ll introduce you to the benefits of a line of credit for your business and help you determine whether it may be right for you.

What is a Business Line of Credit?

A business line of credit is a flexible financing solution that essentially enables a business to access working capital when it needs to.

Businesses can draw on these funds whenever they need and can access as much capital as is needed up to a predetermined limit.

How does a Business Line of Credit work differently from a Business Loan?

A traditional business loan provides funds to businesses as a lump sum. Over a set period the business must pay back this loan in regular instalments plus interest on the full amount outstanding.

In contrast, a business line of credit offers a revolving pool of funds. In other words, your business can draw funds up to the limit for use and repay it before accessing that same amount. It functions in a similar way to a credit card. The critical difference is that your business is only charged interest on the amount drawn, and not on the total credit limit, which means substantial cost savings compared to a business loan.

This level of flexibility makes a business line of credit uniquely suited to helping to manage daily operations, unpredictable expenses, cash flow gaps or even growth opportunities in the market. Because your business controls when it draws funds you can manage when you make the loan repayments without being locked into a set amount for a set period.

How does a Business Line of Credit differ from other facilities?

Business lines of credit are not just distinct from loans. Compared to other financial facilities, a line of credit offers several features:

Flexibility 

Lines of credit, as detailed above, are more flexible. They allow you to draw on, use and then repay whatever amount you need (within your limit).

Cost efficiency 

Thanks to the need to only pay interest on the amount you draw, you can lower the overall cost of the finance facility.

Speed and ease 

Once approved, which is often quicker than other forms of finance, accessing the working capital you need to manage cash flow gaps and unexpected expenditure is simple and instant.

Customisable 

With a provider like ScotPac, your business’s financial health, cash flow, objectives and needs are all considered to determine and set a tailored credit limit.

Short Term 

Business lines of credit, being ideal for managing cash flow fluctuations, are great for covering short-term operating costs, and acting as a financial safety net during uncertain times. Other forms of finance, particularly business loans, may be more suitable longer term or for larger funding needs.

How can a Line of Credit help your business?

There are many different and common financial challenges that could affect a business and necessitate use of a line of credit.

1. Covering unexpected expenses

All businesses are likely to face some unexpected financial challenges in the form of unexpected expenses. Sometimes things can go wrong. Sometimes incoming cash flow can be held up and make meeting expenditure needs difficult. A business line of credit provides the right amount of financial stability to cover both expected and unexpected expenses.

2. Covering operational expenses

But it is not just the unexpected business costs that makes a business line of credit useful. Ongoing operational expenditure, such as payroll, inventory or premises rent, can all be funded through access to a line of credit. This allows for predictable cash flow management and longer term thinking to help your business focus on greater success.

3. Seasonal fluctuations in demand

Some businesses operate in industries in which demand fluctuates with the season. Whilst this seasonal fluctuation can be somewhat predictable, tight cash flow and small margins can put a lot of financial pressure on SMEs. Having access to a line of credit can give businesses the stability they need throughout the year even when demand (or supply) is lower than normal.

4. Delayed customer/client payments

SMEs can be sensitive to delays in incoming cash flow due to customers or clients not paying their invoices on time. Whilst there are a number of financial facilities that can assist SMEs in this situation, a line of credit gives the business complete control over how they manage this challenge without negatively impacting their access to much needed working capital or impacting their relationship with the clientele or customer base.

5. Capitalising on growth

Business lines of credit are certainly useful for helping SMEs manage tight cash flow. But they can also be used proactively to help businesses with limited access to working capital take advantage of time-sensitive or unique opportunities in the market. There may be investment or growth opportunities that without the right access to funds can be missed. A business line of credit allows SMEs to invest in their own longer-term growth.

How does a Business Line of Credit work?

It is important, when considering whether a business line of credit is right for you, that you understand how it works and how that can impact your business.

Credit Limit and Collateral

Business lines of credit have a predetermined limit. Understanding how much credit your business is eligible to access and how much working capital it needs to access can help you determine if this financial facility is right for you.

Interest Rates and Fees

For shorter term working capital solutions and cash flow management a business line of credit is often far more cost effective for small businesses than other forms of finance. But it is still important to know and compare the rates and other associated fees that your finance provider will be charging.

Repayment Terms

Repayment terms can also vary. Of course, a business line of credit provides a lot of control over repayments as you only repay that which you choose to draw, but the differing terms can still be impactful.

Use Case

A business line of credit is also a beneficial form of finance as it allows businesses to use the working capital accessed for a variety of business-related expenses. Whilst best suited for short-term funding needs, the flexibility is there to help fuel your business’ growth.

Are you ready to explore what a Business Line of Credit from ScotPac can do to help your business?

A business line of credit can offer your business the right level of financial flexibility and control of working capital access to help meet operational demands and enable business growth. Working with a lender like ScotPac, which has over 35 years of experience and supports over 9,300 businesses across Australia and New Zealand can ensure you receive the right tailored line of credit you need to fuel your growth.

If you’re still unsure what a business line of credit is, how it works and can work for your business, or how to go about applying for this form of financial facility, make sure to contact the ScotPac team today.