What is a line of credit?

What is a line of credit
A line of credit is an approved amount of funding from a bank or non-bank lender that your business has access to as needed. You can draw down individual amounts from your line of credit facility and you will only get charged interest on the amounts you have drawn down.

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In New Zealand lenders offer both secured and unsecured lines of credit. Every lender is different and the maximum amount available will vary between $100k to $500k.

When applying for a line of credit your business will be assessed on annual income, personal and business credit history and available security if the line of credit is secured. Lenders may also have other criteria your business must meet such as GST payments up to date, supplying financial documents and/or a lender-specific financial questionnaire.

For example:

If your business applies for an unsecured line of credit the amount available to you could be approx 10%-20% of your annual business turnover. If your business is turning over $200k annually this would give you a line of credit between $20k – $40k. The amount available to you would also be assesed on the health of your business and your credit history.

If you were approved for $40k, this amount would be available to your business as you need it. You could draw down $20k and you will only be charged interest on that amount. The remaining $20k would stay in your facility and you would not be charged interest on it until you decided to draw it down. If you decided you didn’t require the additional $20k you would never be charged the interest on it and you would simply repay the $20k you have drawn down over monthy or fortnightly installments.

Interest rates in New Zealand for a line of credit start at 9%. Your businesses interest rate will be determined by your annual turnover, business health and credit history.

A line of credit can be a great option if your business is considering a cashflow loan and wants the security of having funds available as/if you need them. It can offer peace of mind and means if one week a large payment is due and your cashflow is tight, you can access the funds overnight and keep up to date with accounts payable.

Compare Business Loans can assist with both unsecured and secured lines of credit. If you are considering whether a line of credit is a good option for your business, get in touch today and we can assist getting your application together and approved.

Call Glenn on 0272 611 207 or email: glenn@compare-business-loans.co.nz

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