The cash position after settlement can be as important as the purchase price.
Finance education
Cash vs Line of Credit
Understand the difference between using your own cash and maintaining a revolving line of credit for business working-capital needs.
A line of credit can give a business access to approved headroom that can be drawn, repaid and potentially redrawn. The value is flexibility, but the business must understand interest, fees, utilisation rules and the risk of allowing a temporary facility to become permanent debt.
Cash flowFunding structureInteractive toolAustralian business
Consider interest, fees, flexibility, security, term and final obligations.
Stress test the facility against a weaker trading period.
Tax, GST and lender suitability depend on the individual circumstances.
Overview
Start with the business outcome.
A line of credit can give a business access to approved headroom that can be drawn, repaid and potentially redrawn. The value is flexibility, but the business must understand interest, fees, utilisation rules and the risk of allowing a temporary facility to become permanent debt.
General information only: The material and tools do not constitute a quote, approval, tax advice or a recommendation to borrow. Credit is subject to lender assessment, eligibility, terms, fees and security. Speak with an accountant about tax and GST consequences.
Comparison
Potential advantages and trade-offs.
Why a business may consider finance
- Draw only when the cash gap appears
- Retain cash reserves while keeping funding headroom available
- Repay and reuse the facility as the cycle turns
- Support recurring stock, debtor or seasonal requirements
What the business gives up
- Annual, establishment or unused-limit fees may apply
- Variable utilisation can make cost forecasting harder
- Easy access can weaken repayment discipline
- The lender may review or change the facility over time
Interactive tool
Model the decision.
Adjust the assumptions to see how the structure changes liquidity, repayment pressure or estimated cost. The output is educational and intentionally conservative.
Simple estimate only. Product terms may include establishment, line, review, transaction, minimum-interest or unused-limit fees.
Practical example
Put the structure into context.
Illustrative scenario
A wholesaler with recurring inventory purchases may keep a line of credit available instead of using all of its cash for each order. The key is to repay the line as inventory converts back into collected revenue.
Balanced decision
When cash or finance may fit.
A blended structure can also be considered—for example, contributing a deposit from surplus cash while financing the long-lived asset and retaining an operating buffer.
FAQs
Frequently asked questions.
Do you pay interest on the full limit?
Product terms vary, but many revolving facilities calculate interest on the amount drawn rather than the full approved limit; fees may still apply.
Can a line of credit replace a cash reserve?
It can supplement liquidity, but relying entirely on lender availability creates risk.
What is the key discipline?
The business should know what event repays each drawdown and avoid using the facility to fund ongoing losses.
Further reading
Official Australian information.
These sources provide general government and regulatory information. They do not replace individual credit, legal or accounting advice.
Business.gov.au — Choose your fundingGovernment overview of debt, equity and common funding structures, including chattel mortgages.Business.gov.au — Apply for a business loanGeneral information on secured loans, asset-backed borrowing, invoice finance and trade finance.Business.gov.au — Leasing or buying vehicles and equipmentGeneral considerations when deciding how to acquire business assets.Australian Taxation Office — Claiming GST creditsOfficial guidance. Eligibility depends on the acquisition, business use, GST registration and tax rules.ASIC — Credit advertising guidanceGuidance on clear and non-misleading promotion of financial products and credit services.