A Practice Line of Credit for the Year You Buy Your Premises
Line of Credit When Buying Premises | Switchboard Finance
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A Practice Line of Credit for the Year You Buy Your Premises
Buying your premises swallows cash in the settlement quarter. A standby line of credit keeps the practice running while the deposit, outgoings and overlap costs all land at once.
Quick Answer
A practice line of credit does not buy your premises. It sits beside the property loan as a standby limit, covering the working capital gaps and outgoings that the purchase quarter throws up while your fees catch up.
Why a line of credit, and not just a bigger premises loan?
Because the two facilities solve different problems. The commercial property loan funds the building; a line of credit funds the cash flow around it. When a practice moves from tenant to owner, the cost that catches people out is rarely the deposit. It is everything that lands in the same quarter as settlement, while fees are still arriving on the old billing rhythm.
A premises loan is sized to the property, not to your billing-cycle gap. Stretching it to cover working capital is the wrong shape: you would be carrying long-term, secured debt against short-term, lumpy costs. A standby limit is the cleaner instrument here, because you only draw what you use and repay it as receipts land.
What the line of credit actually covers in the purchase year
The line of credit covers the settlement-adjacent costs and the outgoings the premises loan will not cover: council rates and building outgoings during the handover, a fit-out top-up, and the few weeks where the old rent and the new mortgage briefly overlap. None of those belong on the property facility, and most of them arrive before the practice has felt any benefit from owning the building.
Where it works
- Covering rates and outgoings during the handover quarter
- Carrying the billing-cycle gap while fees catch up to costs
- A standby limit for the brief rent-and-mortgage overlap
- Topping up a fit-out the property loan will not stretch to
- Drawing and repaying as patient and rebate receipts land
Where it stalls
- Using the limit as the deposit on the building itself
- Treating it as long-term debt that never gets repaid down
- Sizing it to a wish list instead of the billing-cycle gap
- Funding the bricks, which is a commercial property loan's job
- Drawing with no repayment rhythm against incoming receipts
The split is simple once you see it. The clean side is a facility used as a buffer and paid down as money comes in. The side that stalls is a facility asked to do a term loan's job. Where this commonly lands is somewhere in between: the practice uses it well for the first two quarters, then forgets to pay it back down once cash normalises.
Green flags and red flags a lender reads on the facility
A lender approves a standby limit on how predictably the practice banks, not on the premises plan. The green flags are a steady receipt rhythm, outgoings that are clearly separable from the property purchase, and a limit sized to one to two months of operating costs rather than to the whole transition. Those are the things that make the facility read as a buffer.
The red flags are the mirror image: a limit that looks like a disguised deposit, drawings with no repayment pattern, and a request that blurs the property purchase into the working capital ask. Tax settings can shift in a Budget year too. The federal 2026-27 Budget pointed to cash-flow measures for business, and any loss carry back that applies has historically been a company-only concession rather than something a sole trader or trust can use, so the detail belongs with your accountant, not the lender's read. What a lender wants to see is a facility that maps to how the practice actually trades.
If you want the facility set up so it reads as a buffer rather than a disguised deposit, it is worth mapping it with a broker before you lodge anything.
How to size the standby limit
Size the standby limit to the gap, not to the building. That means starting from your working capital shortfall in the worst billing month of the transition, then adding a modest margin for the outgoings the premises loan will not cover. A limit that maps to roughly one to two months of operating costs, indicative and varies by lender, is usually enough to absorb the overlap without becoming a debt you carry indefinitely.
Sequencing matters as much as the number. A new property facility and the security it carries both show on the file, so where this commonly lands is a cleaner approval when the line of credit is set up either well before or just after the premises loan settles, not jammed into the same week. If you later refinance the property debt, the standby limit can be reviewed alongside it. A broker can map the order so the two facilities read together rather than competing.
Winding the line back once the purchase year is behind you
A standby limit earns its keep through the transition, but it is not meant to become a permanent feature of the balance sheet. Once the practice has a full quarter of normal billing behind the move, the discipline is to draw the limit down and let it sit close to zero, so it is there the next time costs and receipts fall out of step rather than carrying a balance that quietly turns into term debt.
This is also the moment to review the limit itself. The number that made sense around settlement is often larger than the practice needs once the rent-and-mortgage overlap is gone and outgoings have settled into a rhythm. A smaller standing buffer, checked each year against how the practice actually banks, keeps the facility cheap to hold and clean to read if you refinance the property debt later.
A practice line of credit is not how you buy your premises; it is how you keep the practice liquid through the year you do. Used as a buffer for settlement-adjacent costs, outgoings and the billing-cycle gap, then paid down as receipts land, it stops the purchase quarter from squeezing day-to-day operations. Sized to the gap and sequenced cleanly against the property facility, it reads as a standby limit rather than a disguised deposit.
Key takeaway: Buy the building with a property loan, and use a right-sized standby line of credit to carry the cash-flow gaps around settlement.Frequently Asked Questions
A business line of credit is not designed to fund the purchase of practice premises itself. The building is bought with a commercial property facility, and the line of credit sits alongside it to cover the settlement-adjacent costs and the outgoings the premises loan will not cover. If you need help funding the bricks themselves, that is a job for a commercial property loan, not a standby limit.
The costs a line of credit covers when buying premises are the working-capital ones the property facility ignores: rates and outgoings during the handover, fit-out top-ups, the billing-cycle gap between paying staff and receiving fees, and the quarter where rent and the new mortgage briefly overlap. It is a standby limit you draw and repay as receipts land, not a term loan for the purchase.
The standby limit on a practice line of credit should typically cover around one to two months of operating outgoings, indicative and varies by lender, sized to the billing-cycle gap rather than to a wish list. Lenders read the limit against your turnover and receipt rhythm, so a limit that maps to how the practice actually banks is where this commonly lands. The sibling guide on how a line of credit limit is set walks through the mechanics.
A new commercial property loan does affect a line of credit application, because the new repayment and the security the building carries both show on the file. A lender weighs the standby limit against the serviceability left after the premises loan, so timing and how the security is structured matter. Speak to a broker before you lock the sequence so the two facilities read cleanly together.
A line of credit is better than a fixed working capital loan for the purchase year when the need is uneven and hard to predict, because you draw and repay as receipts land rather than carrying a set term debt. A working capital loan can suit a known, one-off cost. The right fit depends on how lumpy your transition spend is, so map it before you choose.
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