What a business credit facility is, the facility types Australian businesses use, and the limit, term, review and fee terms to check before you sign.
Business Owners Hub
Business Credit Facility · Facility Types · Facility Terms
Most owners ask a lender for a loan. What the lender writes back is a facility. That difference decides what you can draw, what you pay on money you never touch, and what the lender can change at review, so it is worth knowing the vocabulary before you sign.
Quick Answer
A business credit facility is an agreement with a lender that sets a limit and terms you borrow under, holding one product, such as a business line of credit, or several, such as an overdraft, term loan and bank guarantee. The agreement sets the credit limit, the term, the review date, the fees and the security, and those terms usually matter more than the headline rate.
Also called: business lending facility, credit facility. They mean the same arrangement; a facility can hold more than one loan or limit, which is what this insight explains.
What is a credit facility in business lending?
A credit facility in business lending is the agreement that sets how much a lender will make available to your business, on what terms, for how long and against what security. It is the framework, not the money itself. The simplest way to hold it in your head: a facility is the container, the loan is the contents.
Inside that container, money can reach you in different ways. Some facilities advance the full amount on day one. Others let you take money out as you need it, through a drawdown, up to the approved limit. Some never advance cash at all, such as a bank guarantee, where the lender promises to pay a third party if your business does not.
Can one facility hold several products?
One facility can hold several products, and for an established business it often does. One agreement, several products is common: an overall limit split into an overdraft, a line for equipment and a guarantee line, all under the same security and reviewed on the same date. We map how those pieces stack in our insight on the cash flow facility stack.
How is a credit facility different from a loan?
A credit facility differs from a loan because the facility is the approved arrangement, while a loan is one way money is advanced under it. A term loan is drawn once and repaid on a schedule, and the amount you repay does not come back to you. A revolving facility works the other way: the limit refills as you repay, and you pay interest on the drawn balance, typically, not on the whole limit.
That is why the word matters in practice. A loan is mostly about the repayment. A facility is about the limit, the term and the review, which are things the lender can revisit while the facility is running. We explain the revolving mechanic in how a business line of credit or overdraft works.
In deals I've seen, the confusion shows up at the first annual review. An owner who thinks they took out a loan finds the agreement lets the lender reprice the facility or reduce a limit they have barely touched. Nothing went wrong; that is simply what a facility is.
What types of business credit facilities are there in Australia?
The main types of business credit facilities in Australia are lines of credit, overdrafts, term loans, equipment lines, invoice finance, trade finance, bank guarantees and business credit cards. Each one does a different job, and each has its own page with the detail. The table below is the map, not the manual.
| Facility | What it is for | How it is drawn | How it is repaid | Where to read more |
|---|---|---|---|---|
| Line of credit | Working capital that rises and falls | As needed, up to the limit | Interest on the drawn balance, typically, with the limit refilling as you repay | Business line of credit guide |
| Overdraft | Short gaps in the transaction account | By letting the account run below zero | Deposits reduce the balance; reviewed regularly, varies by lender | Business overdraft guide |
| Term loan | A one-off purchase, fit-out or refinance | Usually in full at settlement | Scheduled repayments over the term | Business loans |
| Equipment line | Repeat purchases of vehicles or gear | Each asset settled against a pre-approved limit | Each asset repaid on its own schedule | Equipment line of credit guide |
| Invoice finance | Cash tied up in unpaid invoices | Against approved invoices as you issue them | When your customers pay | Invoice finance |
| Trade finance | Paying overseas suppliers before stock sells | Per shipment or supplier payment | Within an agreed period, typically from sales | Trade finance for importers guide |
| Bank guarantee | Lease bonds and contract security | No cash drawn; the lender promises to pay a third party | Only if the guarantee is called | Bank guarantees for contractors |
| Business credit card | Small everyday spend and online costs | Card transactions up to the limit | Monthly statement, with a minimum repayment | Overdraft vs line of credit, and where a card fits |
Which of these fits your cash flow is a separate decision, and the line of credit guide walks through it. For equipment-heavy businesses, the equipment line is often the facility owners did not know existed.
If a line of credit is the facility you are weighing, the detail sits in four companion insights: how a revolving business line of credit refills and resets, what a lender adds to a commercial line of credit for an established company, what a startup business line of credit looks like for a new business, and how lenders read a business line of credit with bad credit.
What do limit, availability period, term and review date mean in a facility agreement?
Limit, availability period, term and review date are the four terms that set what a facility agreement lets you do and for how long. The limit is the most you can owe. The availability period is the window in which you can draw. The term is when the facility ends. The review date is when the lender looks again. Limit, term and review date are the three to find first in any offer, because together they decide how long your money is actually committed.
| Term | What it means | What to check |
|---|---|---|
| Limit | The most the business can owe under the facility, or under each product within it | Whether there are sub-limits, and whether the lender can reduce the credit limit at review |
| Availability period | The window in which you can draw funds | What happens to undrawn funds once the window closes |
| Term | When the facility ends and the balance falls due | Whether it rolls over, needs renewal, or is repayable on demand |
| Review date | When the lender reassesses the facility | What you must provide before it, and what the lender can change after it |
| Line fee | A fee for keeping the limit available | Whether it is charged on the full limit or only the undrawn part |
| Security | What the lender can claim if the facility is not repaid | Which assets are named, and whether security covers all present and future debts |
| Guarantee | A personal promise from a director or other party to repay | Whether a director's guarantee is limited or unlimited |
| Covenant | A financial test or undertaking the business must keep | How often it is tested, and what counts as a breach |
Larger facilities tend to carry financial covenants and reporting conditions on top of these terms. Reading those clauses is covered in our insight on overdraft letter of offer clauses.
What fees come with a credit facility?
A credit facility usually comes with an establishment fee at the start and ongoing fees for keeping the limit open, on top of interest on what you draw. The ongoing fees are the ones owners miss, because they are charged whether or not you use the money.
- Establishment fee. Charged when the facility is set up, sometimes with valuation or legal costs where property security is involved.
- Line fee. A line fee is charged on the limit, typically, which means you pay for the whole approved amount, not just the drawn part.
- Unused limit fee. Some lenders charge on the undrawn portion instead of, or as well as, a line fee. Practice varies by lender.
- Account and review fees. Periodic account-keeping charges, and in some cases a fee when the facility is reviewed or renewed.
- Exit costs. Break costs on fixed-rate portions, or fees for closing a facility early, depending on the agreement.
Fees are quoted in different ways across products, so compare offers on total cost at the limit you expect to hold, not on the rate alone. The fee structures are set out in our business overdraft rates and fees guide.
How do lenders decide which facilities and limits a business gets?
Lenders decide which facilities and limits a business gets by weighing three things: whether the business can service the debt, what security sits behind it, and how the accounts have been run. What lenders actually look at first is serviceability, then conduct on the existing accounts, read through your business bank statements.
One rule surprises owners every time: existing limits can count as if drawn, varies by lender. An overdraft sitting at zero or a card you barely use can still be assessed at its full limit when a new lender works out what you can afford. Tidying up limits you do not need is often a quick win before you apply.
The size of a revolving limit follows its own formula, which we break down in how a business line of credit limit is set. For more on funding a business you own and run, start at the Business Owners Hub.
What should you check in a facility offer before you sign?
Before you sign a facility offer, check the security, the guarantees and the review and on-demand clauses before you look at the price. Read the security before the rate. A cheaper facility secured by a general security agreement over every business asset, plus an unlimited guarantee, can cost you far more than a dearer one if the business hits a rough year.
- Security. Which assets are named, and whether the lender registers an interest on the PPSR against all business assets.
- Guarantees. Who is guaranteeing, whether the guarantee is limited, and how it can be released. Our director's guarantee guide covers the detail.
- Review and on-demand clauses. What the lender can change at review, and whether it can ask for repayment on demand. The letter of offer clauses insight explains how to read them.
- Fees and conditions. Line fees, reporting conditions and any covenants, and what happens if one is missed.
Small businesses do have some protections when a facility goes wrong, but they are narrower than consumer protections and depend on the size of the business and the agreement. We set them out in our guide to business loan protections in Australia. If a dispute with a lender cannot be resolved directly, the Australian Financial Complaints Authority explains which small business complaints it can consider on its small business page.
A business credit facility is the agreement behind your borrowing, not the borrowing itself. It can hold a single line of credit or a stack of products under one limit and one set of security. The terms that decide your flexibility are the limit, the term, the review date, the fees on unused money and the security, and lenders often count your existing limits as if they were fully drawn.
Key takeaway: before comparing rates, find the limit, term, review date and security in every offer, and close limits you no longer use.Frequently Asked Questions
A business credit facility is an approved arrangement that lets a business borrow up to a set limit on agreed terms, rather than a single advance of money. It can hold one product, such as a line of credit, or several products under one agreement. How and when you take the money out is set by the drawdown terms in the agreement.
An example of a credit facility is a business overdraft or line of credit, where the lender approves a limit and the business draws and repays within it as cash flow moves. Other examples are an equipment line, an invoice finance facility and a bank guarantee facility. A revolving line shows the idea most clearly, because the limit refills as you repay.
Business credit is the borrowing a lender is willing to extend to a business, and it works through facilities with a limit, a term and conditions the business has to keep. Lenders decide how much to extend by reading the business's financials, its bank conduct and its repayment record. That repayment record builds up on the business credit report, which lenders check alongside the directors' personal files.
A line of credit facility is a revolving business facility that lets you draw up to an approved limit, pay interest on what is drawn, typically, and draw again as you repay. It sits close to an overdraft but is usually run as a separate account with its own repayment terms. How the two compare, and where a business credit card fits, is a choice worth making before you apply.
Unused facility limits can count against your borrowing, because many lenders assess an existing limit as if it were fully drawn, though this varies by lender. An undrawn overdraft or card limit can reduce what a new lender will offer even when the balance sits at zero. Reducing or closing limits you no longer use before you apply can improve how serviceability is read.
FBAA Accredited
