A limit that is still there after you repay it.
An independent guide to business lines of credit and overdrafts in New Zealand, and a calculator that shows what a drawn balance actually costs. Nothing here is a quote, and no details are collected.
Indicative interest cost
Weekly
$150/week
Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.
Sending to Prospa
Your $150,000 scenario
$60,000 drawn at 13.00% . Prospa will ask a few quick questions, then provide a firm quote and funding if eligible.
Redirecting…
What this is
One instrument, several names.
Almost every business facility is a single event. Money is advanced, a schedule repays it, and the arrangement ends. A revolving facility is different: a limit is approved once, drawn when needed, repaid when cash allows, and the capacity comes back without a new application.
That one difference changes everything else. Interest applies to the balance rather than the amount approved, the price includes a fee on the limit whether or not it is used, there is no schedule forcing the balance down, and the limit can be reduced at a review. Understanding those four things is most of what a business needs before taking one.
This site covers each kind of revolving facility on its own page, in the same shape, so they can be compared rather than described. The calculator sits on every page and shows what a drawn balance costs. Nothing here is a quote, nothing is submitted, and no credit file is touched.
Facilities covered
8
Indicative amount range
$5k to $500k
Interest charged on
What is drawn
Personal details collected
None
The facilities
Eight revolving arrangements.
Each page covers how the facility works, what is charged and on what, how the limit is set and reviewed, and which businesses it actually suits. Indicative bands only.
Business line of credit
The core instrument. A limit drawn and repaid at will, with interest on the balance and a fee on the limit.
Read onBusiness overdraft
The same mechanism sitting on the trading account, so it is used without anyone deciding to use it.
Read onRevolving credit facility
The documented, frequently committed version, with a term, a maturity date and covenants.
Read onSecured line of credit
What property or asset security does to the limit and the rate, and what it exposes.
Read onUnsecured line of credit
Nothing behind it but the trading position, priced accordingly, with a guarantee in most cases.
Read onInvoice-backed line
A limit calculated from the receivables ledger, so it grows as the business invoices more.
Read onBusiness credit card
Free credit inside the interest-free window and the most expensive facility here once a balance revolves.
Read onSupplier and trade credit
Commonly the largest revolving limit a business holds, and the one nobody negotiates.
Read onSide by side
What actually differs between the four most common.
The mechanism is shared. The rows below are where the differences are real and where a choice between two offers is actually made.
| Line of credit | Overdraft | Credit card | Trade credit | |
|---|---|---|---|---|
| Where the limit sits | Beside the account | On the account | On a card | With a supplier |
| Interest charged on | The drawn balance | The daily balance | Any carried balance | Nothing, within terms |
| Cost when unused | The line fee | The line fee | The annual fee | Nothing |
| Drawing | A deliberate transfer | Automatic | By spending | By ordering |
| Relative rate | Moderate | Moderate | Highest | Free, or very high if a discount is forgone |
| Limit set by | A lender | A bank | An issuer | The supplier |
| Reviewed | Periodically | Periodically | Periodically | Continuously, by behaviour |
How the four most common New Zealand revolving arrangements differ. Indicative only, and not an offer of credit.
The decision underneath
Two questions settle most of it.
Question one
Will the money be wanted again.
A need with a size and an end is an event, and a term loan funds an event well: a lower rate, a schedule that clears it, and no temptation to leave a balance sitting.
A need that reopens every quarter is a condition, and a facility that repays to zero funds the last occurrence rather than the next. A business in that position ends up servicing two loans for one problem.
That question decides the instrument better than any comparison of rates, and it takes a minute to answer honestly.
Question two
What stands behind the limit.
Security moves both the rate and the limit, and on a revolving facility it moves them further than on a term loan, because the lender is committing to an open-ended exposure.
It also exposes assets to the limit rather than to a declining balance, for as long as the facility exists. That is a different proposition from securing a loan of the same size.
The middle position, a general security agreement over the business rather than a mortgage over a home, captures much of the pricing benefit while keeping the consequences inside the business.
The number to watch
The lowest balance matters more than the highest.
A revolving facility is working when it comes back down. Recording the least drawn the facility gets in each cycle, and comparing it against the previous two, is the earliest available signal that a limit has stopped revolving and started funding a permanent position. A rising floor is telling a business something a profit and loss statement will not show for another year, and it takes two minutes a cycle to keep.
By use
Four ways a limit is actually used.
The facility is the same in each case. What differs is the shape the drawn balance makes across a year, and the discipline each pattern requires.
Smoothing seasonal cash flow
Drawn through the trough and cleared through the peak, with the deepest point at the pre-season build.
Read on RepeatingFunding a stock cycle
Drawn to buy and repaid as the goods convert, several times a year.
Read on StandingHolding an emergency buffer
Largely undrawn, so the cost is the line fee. Cheap insurance that a lender can withdraw.
Read on IrregularManaging irregular income
A sawtooth between lumpy receipts, where the troughs matter more than the peaks.
Read onThe honest limit
What this site cannot tell you.
Every rate band here is indicative. Nobody publishing a website in New Zealand can say what a specific business will be charged, because the price is a function of trading history, security, the amount and a credit assessment, and only the lender sees all of them. The bands describe a market rather than an offer.
The same applies to limits. What a lender will write depends on the cash cycle, the security and the conduct it can see, and a page that named a number would be describing a policy nobody published.
This site is an education site and a calculator. It is not a lender, a broker or a registered financial adviser, and nothing on it is personalised financial advice.
References
Sources
- Personal Property Securities Register
Backs the statements about the general security interest a revolving facility ordinarily registers.
- External Reporting Board
The publisher of the standards governing how current assets and liabilities are classified.
- Inland Revenue, GST
The published source for GST as a current liability with fixed due dates.
- Commerce Commission
The regulator whose guidance covers lender conduct and fee disclosure.
- Financial Markets Authority, financial advice
Backs the distinction drawn between class information and regulated financial advice.
FAQ
Revolving credit in New Zealand, questions answered
What is a business line of credit?
An approved limit a business can draw against and repay at will, with interest charged only on the balance outstanding. Repaying restores the capacity, so the facility is available again without a new application.
Is a line of credit the same as an overdraft?
Mechanically almost identical. Both are revolving limits charging daily interest on the drawn balance. What differs is that an overdraft sits on the trading account, so it is drawn and repaid automatically through ordinary trading.
What does a facility cost when nothing is drawn?
The line fee, charged on the approved limit whether or not it is used, plus any review charge. On a facility held largely undrawn as a buffer, the fee is most of the annual cost.
How is the annual cost worked out?
From the average drawn balance across the period rather than from the limit, plus the standing charges. That is why the calculator on this site asks for a drawn balance rather than an amount borrowed.
When is a term loan the better choice?
When the need has a size and an end. A term loan is cheaper on money that is genuinely needed continuously, and it comes with a schedule that clears it, which a revolving facility does not.
Can a lender reduce the limit?
On the terms in the agreement, yes, and most small business facilities are uncommitted. Asking whether a facility is committed or uncommitted is the most useful question about how much weight to put on it.
What does security do to a limit?
It raises the limit and lowers the rate, both materially. It also exposes the secured assets to the full limit for as long as the facility exists, because a revolving balance does not amortise.
Is a revolving credit home loan the same thing?
No. That is a consumer mortgage feature with different mechanics and different regulation, and it is the meaning most New Zealanders meet first. Using one to fund a business is common and it is a much larger decision than it appears.
What does a lender look at when setting a limit?
Bank statements first, particularly the low points and how often they are reached, alongside the cash cycle, existing commitments and any security offered. A limit justified by a described cycle is easier to grant than a round number.
Does this site arrange finance?
No. It is an education site with a calculator. There is one disclosed referral to Prospa on the calculator, no contact form, and no personal details are collected anywhere on the site.
Related
Where to next
All eight facilities
Every revolving arrangement compared in the same shape.
Read onHow a line of credit works
Limits, drawdown, interest and reviews.
Read onAgainst a term loan
The question that decides most cases.
Read onHow a limit is used
Four patterns, and the discipline each needs.
Read onLine of credit calculator
What a drawn balance costs, on your own figures.
Read on