How To Use A Business Line Of Credit To Manage Cash Flow Gaps

Australian SMEs are often exposed to seasonal fluctuations, supply chain delays, and payment cycles that don’t align with expenses. That mismatch can lead to a cash flow gap. This is where a business line of credit in Australia comes in.

It offers flexible access to funds when needed and can help business owners preserve their business’s liquidity and tax advantages. 

This buffer empowers them to not only cover shortfalls but also to seize growth opportunities without hesitation.

Business Lines Of Credit Defined

A business line of credit is a revolving credit facility, meaning the client is approved for a set credit limit and can draw from it as needed. Funds can be repaid and redrawn, with interest charged only on the amount in use, not the full limit.

It differs from a term loan in that:

• There’s no lump sum disbursement at the start.
• Repayments replenish the available limit for future use.
• It’s designed for short-term, repeat borrowing needs rather than long-term asset purchases.

A business line of credit in Australia may offer a larger limit and more flexible repayment terms compared to a traditional overdraft. It can be structured around receivables or seasonal revenue cycles. 

Depending on the business’s credit profile and asset base, brokers can help clients choose between unsecured facilities and invoice-secured lines.

Why It Matters For Australian Businesses

On 1 July 2025, the deductibility of interest charged by the ATO on overdue tax debts, known as the general interest charge (GIC) and shortfall interest charge (SIC), was removed. 

Previously, businesses could claim these interest payments as a tax deduction, which softened the financial blow of late payment.

Now, the real cost has jumped. Businesses that once tolerated a few months of ATO interest as part of cash flow management will now find that strategy expensive and inefficient.

For brokers, this is a clear conversation starter. Using a business line of credit in Australia to pay ATO obligations on time can potentially help clients:

• Avoid the non-deductible interest.
• Replace it with deductible interest from a lender.
• Reduce the effective cost of financing.

It’s not just about tax. Clients who keep up with tax obligations can typically maintain better compliance records, which can be crucial when tendering contracts, applying for finance, or passing due diligence checks.

Benefits Of Using A Line Of Credit To Cover Cash Flow Gaps

The advantages of a business line of credit in Australia extend well beyond avoiding ATO charges.

Some of these potential advantages include the following:

1. Flexible drawdowns: Clients can access only the amount they need when they need it, avoiding the problem of paying interest on unused capital.
2. Interest savings: Since interest is calculated only on the outstanding balance, businesses may be able to keep costs low during months when cash flow is strong.
3. Ongoing access to funds: Once approved, the facility will remain available since there is no need to reapply for each drawdown. This can provide SME clients with peace of mind, since the capital is there when it’s required.
4. Seasonal and project-based suitability: A line of credit is ideal for seasonal businesses or those operating on a project-by-project basis, where income can be lumpy.

These points are persuasive for brokers when presenting options to clients weighing short-term financing strategies.

How To Present This Option To Clients (Broker Strategy)

Positioning matters. If a broker introduces a business line of credit as “extra debt,” clients may shy away. 

Instead, you may want to frame it as a working capital management tool that can provide flexibility, reduce costs, and improve compliance.

Here’s how brokers can make the case:

• Lead with the tax impact: Show clients the cost difference between paying GIC at the ATO rate versus using a deductible lender rate.
• Highlight speed: Emphasise that many lenders can provide approvals in as little as 24 hours, which can be vital in urgent situations.
• Match to cash flow cycles: Demonstrate how drawdowns can align with payroll weeks, supplier payments, or BAS lodgements.

A good practice is to prepare a “cost of inaction” calculation for each client scenario, comparing the expense of doing nothing against the cost of using a line of credit.

Structuring The Facility: Key Considerations

Getting the structure right is crucial. Before suggesting a specific business line of credit, brokers might want to help clients consider:

• Credit limit: Should be enough to cover typical cash flow gaps, but not so high that it tempts overspending.
• Interest rates and fees: It’s important to consider possible establishment, drawdown, or maintenance fees.
• Repayment flexibility: Some facilities allow interest-only periods; others require regular principal repayments.
• Security requirements: Unsecured lines may be quicker to arrange but can carry higher rates; secured lines often have better pricing.
• Review periods: Annual reviews can align the facility with business needs but may require updated financials.

By looking into these factors, brokers can deliver a facility that truly works for the client’s business model.

Compliance And Tax Implications (ATO & Government Context)

From a compliance standpoint, paying tax obligations on time keeps businesses in good standing with the ATO, avoids additional penalties, and maintains trust with lenders.

In Australia, businesses can use a tax-deductible line of credit to avoid expensive penalties for delaying tax payments, which is consistent with good governance.

Brokers can advise clients to:

• Keep business purpose documentation for any drawdown (e.g., invoices paid, BAS settlements).
• Review with an accountant to confirm deductibility.
• Maintain timely lodgements to avoid compounding compliance issues.

Conclusion

For Australian brokers, a business line of credit is not just another product—it’s a strategic response to shifting tax rules and the perennial challenge of cash flow management. 

By presenting it as a proactive tool, structuring it around each client’s business cash flow, and emphasising compliance and tax efficiency, you can help clients bridge gaps without breaking stride.

Consider having these conversations as early as possible. Work with trusted lenders, run the numbers, and position the line of credit as an innovative, flexible, and cost-effective option.