A bank of monitors and an empty operator desk in a control room

How a limit is used

A limit held undrawn is insurance, not capital.

An unused facility costs the line fee and nothing else, which makes it cheap protection. It is also protection a lender can withdraw, which is the part that decides how much weight to put on it.

Last reviewed 8 September 2026

Indicative interest cost

Weekly

Disclaimer

$40/week

$175 /month $2,100 a year while drawn

Facility limit $100,000

$5,000 $500,000

Average drawn balance $15,000

Nothing drawn Fully drawn

Indicative rate 14.00% 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 about holding a limit.

An undrawn limit costs the line fee. On a $100,000 limit at 0.75% that is $750 a year for cover the business hopes never to use.
It is cheaper than holding the same cash. Cash sitting idle earns a deposit rate and is capital the business cannot use elsewhere. A limit costs a fee and leaves the capital working.
It is not as reliable as cash. A limit can be reduced or withdrawn on the terms in the agreement, and a bank balance cannot.
Occasional use keeps it healthy. A facility never touched can look dormant at review, and one used and cleared periodically reviews better.
Indicative only. Every figure here is illustrative and no facility is offered here. Terms come from a lender after assessment.

The comparison

Holding a limit against holding cash.

Illustrative on a $100,000 buffer. The rows that matter most are the last two, which are about reliability rather than cost.

	An undrawn $100,000 limit	$100,000 held in cash
Direct annual cost	~$750 in line fee	Nothing
Opportunity cost	None, capital stays working	The return the capital could have earned
Cost if used for three months	~$3,250 in interest plus fee	Nothing
Available on demand	Ordinarily yes	Yes
Can be withdrawn by someone else	Yes, on review	No
Available if the business is struggling	Least certain then	Yes

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

Reading the table

The last row is the whole argument.

A limit is cheaper to hold than cash and less reliable when it matters. Lenders review facilities, and the review that reduces a limit is far more likely to happen in a year where the business has had a difficult period, which is the same year the buffer was being held for.

That does not make a facility a poor buffer. It makes it a good first line and a poor only line. A business with both a modest cash reserve and a facility has protection that survives a lender changing its mind, and a business with only a facility is relying on a third party’s continued comfort.

The practical version of that for most small businesses is to hold enough cash for the obligations that cannot be missed, particularly payroll and tax, and to hold a facility for everything beyond that. The cash covers the scenario where the facility is gone, and the facility means the cash reserve does not have to be large.

Sizing it

Four ways to decide how large a buffer should be.

None of these produces a single right answer, and each is more useful than choosing a round number.

The worst month in the last three years

How far the account fell, from the statements rather than from memory. A buffer sized to the worst thing that has actually happened is defensible in a way a round number is not.

One payroll cycle plus one tax date

The two obligations that cannot be deferred without consequences. A buffer covering both means the business can absorb a bad month without a difficult conversation with anyone.

The largest customer’s balance

Where one account owes a substantial sum, the buffer that matters is the one that survives that customer paying sixty days late.

The cost of the fixed base for a quiet quarter

Rent, core staff and compliance for three months, for a business whose income can genuinely stop. Relevant to project-based and seasonal businesses more than to steady ones.

The habit that keeps a limit alive

A facility that is never used can be reduced for exactly that reason.

Lenders review dormant facilities, and a limit that has not been drawn in two years is capital the lender is holding available for no return beyond the line fee. Drawing on it occasionally and clearing it, even where the business does not need to, demonstrates that the facility is part of how the business operates and produces a better review. It also confirms the mechanics still work, which is worth knowing before the month where it matters rather than during it.

The pattern

What a held limit gives and what it does not.

What it gives

Cover at a small fraction of the cost of holding the same amount in cash
Capital that stays working in the business rather than sitting idle
Immediate availability, with no application at the moment of need
A cushion that removes the pressure to accept poor terms in a hurry
Confidence to take on work that consumes cash before producing it

What it does not

Guarantee availability, since the limit can be reduced or withdrawn
Survive a review where the business has had a difficult period
Cost nothing, because the line fee is charged whether or not it is used
Substitute for cash where an obligation absolutely cannot be missed
Stay healthy on its own, since a dormant facility invites reduction

Worked example

A buffer used once in three years.

A business holds a $100,000 limit at an indicative 14% with a 0.75% line fee. In two of three years it draws nothing, so the facility costs $750 a year. In the third year a large customer pays two months late and the business draws $60,000 for ten weeks.

That drawing costs about $1,610 in interest, so the third year costs around $2,360 and the three years together cost about $3,860. Holding $100,000 in cash for the same three years would have cost the return that capital could have earned in the business instead, which for most trading businesses is considerably more than $3,860.

The arithmetic favours the facility clearly on cost. What it does not settle is the reliability question, which is why the sensible position is ordinarily a smaller cash reserve alongside the limit rather than a choice between them.

Illustrative figures

Limit: $100,000
Line fee a year: $750
Drawn in year three: $60,000 for 10 weeks
Interest on that drawing: ~$1,610
Three-year total: ~$3,860

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

When the buffer fails

Three ways a held limit is not there when it is wanted.

It is reduced at review

A lender concerned about the trading position lowers the limit, and the reduction arrives in the year the business was holding the buffer for.

What happens:Protection removed at precisely the moment it was being relied on, from a provision that was in the agreement all along.

It is withdrawn as dormant

A facility untouched for years is reduced or cancelled because it is capital held available for no return.

What happens:A buffer lost for lack of use, which is entirely avoidable by drawing and clearing occasionally.

It is already drawn

The buffer was used for something else and never repaid, so the headroom that was the whole point of holding it has gone.

What happens:No cover at all, discovered at the moment it is needed, which is the most common of the three.

The third is the one to guard against actively. A buffer only works while it stays undrawn, and a facility used for ordinary funding has stopped being a buffer whatever it was arranged as.

The honest position

Cheap insurance, held with the right expectations.

An undrawn facility is genuinely good value as protection. It costs a few hundred dollars a year, it leaves capital working in the business, and it removes the pressure to accept whatever funding is available quickly when something goes wrong. For most small businesses it is a better use of a few hundred dollars than almost any other risk measure.

What it should not be is the entire plan. A limit that depends on a lender remaining comfortable is exactly the kind of protection that thins out under stress, and the businesses that discover this are the ones that needed it most.

The combination that works is small and unglamorous. Enough cash to cover the obligations that genuinely cannot be missed, a facility for everything else, and the discipline to keep the facility undrawn and occasionally exercised. That is the whole of the advice on this page.

Keeping it available

Three habits that protect a buffer.

01
Draw and clear it once or twice a year
A dormant limit invites reduction at review, because it is capital the lender is holding for no return beyond the line fee. Using it deliberately for a fortnight and clearing it demonstrates the facility is part of how the business operates, and it confirms the mechanics work before the month that matters.
02
Keep it separate from working funding
Where a buffer and an operating facility are the same limit, the buffer disappears the first time the operating need is large. Two limits, or one limit with a portion treated as reserved, is what keeps the protection actually available.
03
Review the size annually against the year that happened
A buffer sized three years ago against a smaller business is now too small, and one sized after an unusually bad year may be larger than necessary. Checking it against the worst month of the year just finished takes ten minutes.

The alternative nobody mentions

What a smaller, faster buffer looks like.

Not every emergency needs a large facility. A great many of the situations a buffer is held for are a single payroll, one tax date or one supplier invoice arriving in a week where a customer paid late, and those are measured in tens of thousands rather than hundreds.

A buffer sized to that is cheaper to hold, easier to obtain and far more likely to survive a review than one sized to a catastrophe. It also leaves the business less exposed to the limit being reduced, because a smaller limit is a smaller thing for a lender to reconsider.

The catastrophic scenarios are real and they are not what a revolving limit is good at. A business genuinely planning for the loss of its largest customer or a six-month interruption needs capital or insurance rather than a facility, because a facility is exactly what disappears in that situation.

The cost if used

What drawing on the buffer costs.

The line fee is the cost of holding the limit. This is the cost of using it, on the drawn balance for as long as it is drawn. Indicative only, and not a quote or offer of credit.

Indicative interest cost

Weekly

Disclaimer

$40/week

$175 /month $2,100 a year while drawn

Facility limit $100,000

$5,000 $500,000

Average drawn balance $15,000

Nothing drawn Fully drawn

Indicative rate 14.00% 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 deposit and lending rates underlying the comparison with holding cash.
Commerce Commission
The regulator whose guidance covers lender conduct, including facility reviews and variations.
Inland Revenue, payment options
Backs the point that tax obligations are among those a buffer is most often held for.
Employment New Zealand
Backs the description of payroll as the obligation with the least tolerance for delay.
Financial Markets Authority, financial advice
Backs the distinction between general information of this kind and regulated financial advice.

FAQ

Holding an emergency buffer, questions answered

What does an undrawn facility cost?

The line fee, charged on the approved limit whether or not it is used, plus any review or renewal charge. On a $100,000 limit at 0.75% that is $750 a year.

Is a facility better than holding cash?

Cheaper, and less reliable. A limit costs a fee and leaves capital working in the business; cash costs the return that capital could have earned and cannot be withdrawn by anyone else.

Can a lender take the limit away?

On the terms in the agreement, yes, and it is most likely to do so where the business’s position has weakened. That is precisely the year a buffer was being held for, which is the central weakness of relying on one.

How large should a buffer be?

Sized from something specific rather than a round number: the worst month in three years, one payroll cycle plus one tax date, the largest customer’s balance, or a quiet quarter of fixed costs.

Should the facility be used occasionally?

Yes. A dormant limit can be reduced for being dormant, and occasional drawing and clearing demonstrates the facility is part of how the business operates. It also confirms the mechanics work before the month that matters.

What if the buffer is already drawn when it is needed?

Then there is no buffer. A facility used for ordinary funding has stopped being protection whatever it was arranged as, which is the most common way this pattern fails.

Should a business hold both cash and a facility?

For most, yes. Enough cash for the obligations that genuinely cannot be missed, and a facility for everything else. The cash covers the scenario where the facility is withdrawn, and the facility keeps the cash reserve small.

Does holding a facility affect other borrowing?

It is visible to any lender assessing a new application and counts toward total available credit. A facility held undrawn and cleanly conducted reads well, and it is not free of consequence.

What is a reasonable line fee?

It varies by lender and by whether the facility is secured, and this site does not publish rates. What matters is comparing the fee against the limit rather than against the amount expected to be drawn, since it is charged on the whole limit.

Is a credit card a reasonable buffer?

It is the most expensive option available and it is genuinely instant. As a last resort behind a facility it is defensible; as the primary buffer it means any emergency is funded at the highest rate the business pays anywhere.

How often are facilities reviewed?

Periodically, on a cycle set in the agreement, commonly annually. The review looks at the trading position and the usage pattern, which is why occasional use and a clean record matter to keeping a limit in place.

Is this page financial advice?

No. It describes a usage pattern in general terms. This site is not a lender, a broker or a registered financial adviser, and what suits a particular business depends on facts a website cannot see.