Quick answer
A business line of credit with bad credit is a revolving limit, sized on your turnover and bank statements or secured on property, that you draw on when cash is short and repay as customers pay. Specialist lenders offer them to trading businesses whose credit files carry older, explained problems. They suit uneven cash flow, not permanent shortfalls, and interest is usually charged only on what you've drawn.
Key points
- A line of credit replaces the buffer a bank overdraft used to give.
- You draw, repay and draw again up to the limit.
- Best for timing gaps: slow payers, seasonal dips, tax and super dates.
- Payday Super, from 1 July 2026, has made super outflows more frequent.
- Unsecured range
- Typically $5k to $500k
- Secured option
- Against property
- Suits
- Timing gaps, not losses
For years, the bank overdraft was the quiet safety net under many small businesses. It covered the fortnight between paying wages and getting paid by customers. Then a bad year, a default or a policy change came along, and the bank reduced it or cancelled it. Suddenly every lumpy week becomes a crisis.
A line of credit from a specialist lender can put that safety net back, even when the credit file isn’t spotless.
How does a business line of credit work?
It’s a revolving limit. You draw what you need, when you need it, and repay as cash comes in. Once repaid, the funds are available again.
| Feature | Line of credit | Term loan |
|---|---|---|
| Funds | Draw as needed, up to a limit | Lump sum at the start |
| Repayments | Flexible, based on what’s drawn | Fixed schedule |
| Cost | Usually charged on the amount drawn | On the full balance outstanding |
| Best for | Timing gaps that repeat | A one-off need |
Limits on unsecured facilities usually fall somewhere from $5,000 to $500,000, and the lender works yours out from turnover and the pattern in your bank statements. Where there’s property, a line of credit can also be secured, which usually allows a larger limit.
Why can a line of credit help a difficult file?
Because many difficult files started as cash-flow problems. A late-paying customer meant a BAS payment slipped. A seasonal dip meant a supplier waited. Without a buffer, each timing gap turned into a debt, then a default or an ATO balance. A line of credit covers the gap before it becomes a debt.
Payday Super has made this more pressing. Since 1 July 2026, the Fair Work Ombudsman explains, employers must pay super so it reaches employees’ funds within seven business days of paying wages, rather than quarterly. For a business used to holding super cash for a few weeks, that’s a real change in timing, and a buffer helps.
Curious about a limit for your business? Start a 60-second enquiry. There’s no credit check when you first enquire.
What do lenders look for with bad credit?
- Steady deposits in your business bank statements, so they can size the limit.
- Account conduct: few dishonours and a pattern of money coming in regularly.
- Credit history weighed in context: older, explained listings are often fine; fresh ones raise questions.
- No stacking: several short-term lenders already deducting from the account can block a new limit. See refinancing expensive debt.
- A clear use: covering timing gaps, not funding ongoing losses.
How do I use a line of credit well?
The businesses that get the most out of a line of credit treat it like a bridge, not a floor:
- Draw for timing, repay from receipts. Use it for the gap between paying and being paid, and pay it down when the invoice clears.
- Watch the balance fall. A limit that stays fully drawn for months is really a loan, and lenders will treat it as one.
- Keep tax and super separate. Use the limit to smooth dates, not to replace money that should have been put aside. The ATO’s advice is to lodge on time even when you can’t pay (ATO support to lodge and pay), and a line of credit can help you do both.
- Review it yearly. As your credit improves, you may qualify for a larger limit or a lower-cost facility.
When is a line of credit the wrong tool?
When the problem isn’t timing. If the business spends more than it earns every month, a line of credit just fills up and stays full. If you have a large one-off debt, such as an ATO balance or a judgment, a term loan or a property-secured refinance is usually cleaner. And if the losses came from one bad year, see loans after a loss year.
Illustrative example: slow payers, fast wages
Illustrative only, not a real client. A commercial cleaning company in Parramatta pays staff weekly but invoices large clients on 45-day terms. The bank cancelled its overdraft after a default from a disputed equipment lease. Since Payday Super began, the company has also been paying super every pay cycle.
A specialist lender offers an unsecured line of credit sized on the company’s steady deposits. The owner draws before each pay run when a client is late and repays when invoices clear. The balance rises and falls each month, which is exactly what the lender wants to see.
Can a line of credit sit alongside a payment plan with the ATO?
Often it can. Many owners use a line of credit to make sure new BAS and super obligations are met on time while an older tax balance is paid down under a plan. Lenders tend to like this, because it shows the business keeping current obligations current. If you’re considering whether to pay the plan out instead, our page on borrowing while on an ATO payment plan compares the options.
Get your buffer back
Losing the overdraft shouldn’t mean living week to week. We’ll look for a lender who can set a sensible limit for your cash cycle. The form is quick, around a minute, with no credit check when you first enquire. Your enquiry isn’t passed along a chain of lenders, and a specialist phones you to size the limit together.
Please be accurate about turnover, how customers pay you and any credit issues. That’s how we size the right limit first time. See if you qualify →
Frequently asked questions
How is a line of credit different from a business loan?
A loan gives you a lump sum repaid over a set term. A line of credit gives you a limit to draw on as needed and repay when you can, so you usually pay only on the amount drawn.
Can I get a line of credit if my bank cancelled my overdraft?
Often, yes. Specialist lenders assess the business's turnover and bank statements, and consider credit history case by case, so a cancelled overdraft isn't a barrier in itself.
Is a line of credit a good way to pay the ATO?
For a one-off tax balance, a term loan is usually cleaner. A line of credit suits recurring timing gaps, such as covering BAS or super dates while waiting for customers to pay.
What happens if I stay fully drawn all the time?
Lenders will notice. A limit that never comes down suggests a permanent shortfall rather than a timing gap, and the lender may reduce it or convert it to a loan. Aim to see the balance fall regularly.