Revolving facility

A limit that stays available after it is repaid.

A line of credit is approved once and used repeatedly. Interest is charged on what is drawn rather than on the limit, which is the property that makes it the right shape for a need that keeps returning.

Last reviewed 8 September 2026

Indicative interest cost

Weekly

Disclaimer

$150/week

$650 /month $7,800 a year while drawn

Facility limit $150,000

$5,000 $500,000

Average drawn balance $60,000

Nothing drawn Fully drawn

Indicative rate 13.00% p.a.

8% (secured) 30% (unsecured)

Apply directly with Prospa Why Prospa

Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.

The short version

Five lines that describe the instrument.

The limit survives repayment. Repaying $30,000 restores $30,000 of headroom. That is what separates a revolving facility from every scheduled one.
Interest runs on the drawn balance. An undrawn facility costs the line fee and nothing else, which is why a limit held for emergencies is cheap to hold.
There is no repayment schedule. Repaying is at the business’s discretion, which is the flexibility being bought and the discipline the facility demands.
The limit is reviewed rather than permanent. It can be reduced or withdrawn on the terms set out in the agreement, which is worth reading before relying on it.
Indicative only. Every figure here is illustrative. Actual limits, rates and fees come from the lender after assessment.

The mechanism

What actually happens when a limit is used.

A limit of $150,000 is approved and nothing happens until the business draws on it. Drawing $60,000 to cover a stock purchase leaves $90,000 of headroom and starts interest accruing on $60,000, calculated daily on the balance outstanding.

Two months later a customer pays and the business repays $40,000. Interest now accrues on $20,000, the headroom is back to $130,000, and no application, approval or documentation was involved in either the drawing or the repayment.

Nothing else in business finance behaves that way. A term facility repaid early is gone, and a business that finds it needs the money again is starting a new application. A line of credit is arranged once and used for as long as the lender keeps it in place.

Draw

When it is needed

Interest

Daily, on the balance

Repay

When cash allows

Headroom

Restored on repayment

Worked example

A $150,000 limit across a year.

A distributor holds a $150,000 line at an indicative 13%, with a 0.5% annual line fee on the limit. Drawings peak at $120,000 in the two months before its busiest season and fall to nothing for four months after it. The average drawn balance across the year is around $60,000.

Interest on that average is roughly $7,800. The line fee on the full limit is $750 whether or not the money is used, and an establishment fee applied in the first year adds a few hundred more. The total is in the order of $8,600 for a facility that was available in full every day of the year.

The comparison worth making is against a $150,000 term loan at the same rate, which would cost roughly $19,500 in interest for the year because it charges on the whole amount throughout. The line costs less than half as much and does the same job, and the difference is entirely in what the interest is charged on.

Illustrative figures

Limit: $150,000
Average drawn: ~$60,000
Indicative rate: 13%
Interest for the year: ~$7,800
Line fee at 0.5%: $750
Indicative total: ~$8,600

Illustrative on stated assumptions and rounded. Not a quote or offer of credit.

The charges

What is charged, and on what.

A facility quoted as a rate alone is describing part of the cost. The second column is what makes two offers comparable.

Charge	Calculated on	Applies when
Interest	The drawn balance, daily	Only while drawn
Line or facility fee	The approved limit	Always, drawn or not
Establishment fee	The facility, once	At the outset
Review or renewal fee	The facility	At each periodic review
Unarranged excess fee	A balance above the limit	Only if exceeded
Security and registration costs	Disbursements	Where security is taken

Indicative charge structures across the New Zealand market. Any particular facility is priced by its lender.

The line fee

Why an undrawn facility is not free.

A line fee is charged on the whole approved limit regardless of usage, because the lender has committed capital it cannot lend elsewhere. On a large limit that is rarely used, the fee can be most of the annual cost, and a business holding a facility purely as insurance is paying for the insurance rather than for money.

That is a legitimate thing to pay for. The question worth asking is whether the limit is sized to what the business might need or to what it was offered, because a limit twice the size of any drawing the business has ever made is charging twice the fee for the same protection.

It also means the arithmetic on a low-use facility is different from the arithmetic on a heavily used one. A business drawing continuously is paying mostly interest and should compare on rate. A business drawing rarely is paying mostly line fee and should compare on that.

Against the alternatives

Where a line beats a scheduled facility.

The differences are structural rather than about price alone, and they point at quite different needs.

Feature	Line of credit	Term loan	Invoice finance
Available after repayment	Yes	No	Yes, per invoice
Interest charged on	The drawn balance	The whole amount	The advance
Repayment	At the business’s discretion	On a schedule	As customers pay
Cost when unused	The line fee	Full interest	Standing fees
Limit grows with the business	Only at review	No	Yes, with the ledger
Suits a need that is	Recurring and variable	One-off and sized	Caused by payment terms

The first two rows carry the decision. A business borrowing for a recurring need on a term facility is repaying money it will want again, and paying interest on the whole amount for the whole period while it does.

Who it suits

Four business shapes where it earns its place.

Seasonal trading

Drawn through the trough and repaid through the peak, year after year, without a new application each time. This is the pattern the instrument was built around.

A stock cycle

Buying, holding and selling on a repeating rhythm. The limit funds each cycle and clears as the stock converts, which is the cleanest use of a revolving facility.

An emergency buffer

A limit held largely undrawn, so the cost is the line fee rather than interest. Cheap insurance against a month nobody planned for.

Lumpy income

Project work, milestone billing or anything where revenue arrives in irregular blocks against steady costs. The limit absorbs the timing without a schedule fighting it.

The discipline it demands

A facility that never returns to zero has become a term loan without a schedule.

The absence of a repayment schedule is the flexibility being bought, and it is also the risk. A business that draws to a limit and never comes back down is carrying permanent debt at a revolving rate, without the discipline of a schedule forcing it down and without the lower rate a term facility would have offered for the same permanence. A limit that clears at some point in every cycle is behaving as intended. One that has not been below eighty percent for two years is telling the business something worth acting on.

The process

What an application involves.

Generalised rather than specific to any lender.

01
Amount and purpose
What limit is being asked for and what it is for. A limit justified by a described cash cycle reads very differently from one justified by a round number, and the difference shows in what is offered.
02
Trading information
Bank statements first, because a lender assessing a revolving facility is looking at how the account behaves rather than at a single repayment. Financial statements and management accounts come in at larger amounts.
Documents commonly required
- Bank statements
- Financial statements where held
- Existing facility schedule
03
Security
Whether the limit is secured, and over what. A general security agreement is common even on facilities described as unsecured, and where property security is taken the process lengthens considerably.
Documents commonly required
- Security documents
- Property details where applicable
04
Approval and review terms
The limit, the rate, the line fee and the review cycle. The review terms are the part most often skimmed and the part that determines how much the business can rely on the facility.

No timings appear here. They vary by lender, by amount, by whether security is taken and by how complete the file is, and a page naming a number would be describing a promise nobody made.

When it goes wrong

Three things a revolving facility can do that a term loan cannot.

The limit is reduced at review

A lender can lower or withdraw a limit on the terms in the agreement, and it is most likely to do so when the business’s position has weakened, which is when the facility matters most.

What happens:Funding disappearing at the point it is most needed, from a provision that was there all along.

The balance never clears

Continuous drawing without repayment converts a flexible facility into permanent debt at a revolving rate, with no schedule to force it down.

What happens:A higher cost than a term facility would have carried for the same money, and a weaker position at the next review.

The limit is exceeded

An automatic payment or a direct debit taking the balance above the limit attracts an excess fee and, more importantly, is visible to the lender as a control failure.

What happens:A small cost and a poor signal, both avoidable by watching headroom rather than the balance.

The first of these is the argument for not treating a revolving limit as permanent capital. It is available until it is not, and the terms on which it can be changed are in the agreement.

The honest limit

What a line of credit does not solve.

It funds timing. Where a business is profitable and waiting, a limit bridges the wait at a cost proportional to how long and how much, which is a good trade. Where the business is not profitable, a limit funds the shortfall repeatedly and quietly, and the absence of a repayment schedule removes the signal that would otherwise force the question.

That is the specific risk of the instrument. A term loan announces a problem when it cannot be repaid. A revolving facility absorbs the same problem for months without saying anything, and the balance simply drifts up.

The remedy is a number rather than a rule. Watching the lowest drawn balance in each quarter, rather than the highest, shows whether the facility is revolving or accumulating, and it is the single most useful measure a business holding one can keep.

The cost while drawn

What a drawn balance costs to carry.

A revolving facility charges on what is drawn rather than on the limit, so this shows the interest cost of an average drawn balance. The line fee sits on top of it. Indicative only, and not a quote or offer of credit.

Indicative interest cost

Weekly

Disclaimer

$150/week

$650 /month $7,800 a year while drawn

Facility limit $150,000

$5,000 $500,000

Average drawn balance $60,000

Nothing drawn Fully drawn

Indicative rate 13.00% p.a.

8% (secured) 30% (unsecured)

Apply directly with Prospa Why Prospa

Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.

References

Sources

Reserve Bank of New Zealand, statistics
Context for why indicative rate bands move over time rather than being fixed figures.
Commerce Commission
The regulator whose guidance covers lender conduct and fee disclosure.
Personal Property Securities Register
Backs the description of the general security interest a facility ordinarily registers.
Financial Service Providers Register
Where a New Zealand lender’s registration can be confirmed before an application is made.
Financial Markets Authority, financial advice
Backs the distinction between general information of this kind and regulated financial advice.

FAQ

Business line of 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 headroom, so the facility is available again without a new application.

How is it different from a term loan?

A term loan advances a fixed amount and repays it to zero on a schedule, charging interest on the whole amount throughout. A line charges only on what is drawn and stays available after repayment, which is why it suits a recurring need and a term loan does not.

What does it cost when nothing is drawn?

The line fee, charged on the approved limit regardless of usage, plus any review or renewal charge. On a large limit that is rarely used the fee can be most of the annual cost.

Is there a repayment schedule?

Ordinarily not. Repayment is at the business’s discretion, which is the flexibility being bought. Some facilities require the balance to clear entirely at least once a year, and that condition is set out in the agreement.

Can the limit be reduced?

Yes, on the terms in the agreement. A lender can lower or withdraw a limit, most often when the business’s position has weakened, which is precisely when the facility is most wanted. Reading those terms before relying on the limit is worth the ten minutes.

How is the limit set?

From the trading position, the security offered and the purpose described. A limit justified by a described cash cycle ordinarily fares better than one justified by a round number, because the lender can see what it is sizing against.

Is security required?

It varies. Many business lines carry a general security agreement over the business, and larger or cheaper facilities are frequently secured over property. A personal guarantee is common on unsecured limits.

What happens if the limit is exceeded?

An excess fee ordinarily applies and the lender sees the excess. Neither consequence is severe on its own, and both are avoidable by monitoring headroom rather than the balance, particularly where automatic payments are scheduled.

Should the balance return to zero?

At some point in a normal cycle, ideally. A facility that clears periodically is revolving as intended. One that has not been substantially down for a long period is functioning as permanent debt at a revolving rate, which costs more than a term facility would have.

Can a line of credit be used for an asset purchase?

It can, and it is ordinarily the wrong instrument. An asset held for years financed on a limit that revolves means permanent drawing against a facility priced for temporary use, and asset lending secured on the asset itself will generally cost less.

How often is a facility reviewed?

Periodically, on a cycle set in the agreement, commonly annually. The review looks at the trading position and the usage pattern, and a facility that has been used and cleared through several cycles reviews considerably better than one that has sat at the limit.

Is this page financial advice?

No. It describes how a facility works in general terms. This site is not a lender, a broker or a registered financial adviser, and whether a line suits a particular business depends on facts a website cannot see.