Business lending explained

Business overdraft, line of credit or term loan: how brokers choose

These three are treated as interchangeable by borrowers and are not remotely the same product. The difference is what happens after the money is used, and that is what decides which one fits.

Last updated: 25 August 2026

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The short version

A term loan is drawn once and dies as it is repaid. An overdraft and a line of credit are limits: the money is repaid and available again, which makes them the only sensible answer to a recurring timing problem.

The distinction that matters most in practice is not flexibility but review. A term facility has a contract that runs to term. A limit gets looked at again, and the look happens on the lender's timetable rather than the borrower's.

How each one actually behaves

Term loan

Fixed amount, fixed term, scheduled repayments. Predictable and easy to budget, and the wrong instrument for a gap that reopens next month. Once repaid, the money is gone unless a new application is made.

Business overdraft

Attached to the trading account, so it absorbs the swing invisibly. Interest only on what is drawn. Usually subject to annual review, and typically repayable on demand — which is the clause borrowers do not read.

Line of credit

A separate revolving limit, drawn deliberately rather than by the account going negative. More structured than an overdraft, often larger, and usually wants security behind it.

The questions that settle it

Four things decide which structure a file takes, and none of them are the interest cost.

Does the need repeat? A stock cycle, a payroll swing, seasonal trade — anything with a rhythm is a limit. A single purchase is a term facility.
Does the account return to credit? An overdraft is designed to fluctuate. If the projected position never returns to credit, the business is asking for term debt through the wrong instrument, and the annual review will say so.
Can the business live with a review date? A limit that is not renewed becomes a repayment demand at a time nobody chose. For a business with lumpy revenue that is a real risk, not a theoretical one.
Is there security to support a limit? Unsecured limits are smaller and more expensive. A property or a strong debtor book changes the size of the limit more than it changes the price.

The full product map sits in types of business loans; where the answer is really the debtor book, look at invoice finance instead.

Where borrowers get it wrong

The most common error is a term loan used to fill a gap that repeats. The money clears the hole, the hole reopens on the next cycle, and now there is a repayment sitting on top of it. Six months later the business is worse off and the broker who wrote it looks like the cause. Cash-flow enquiries need the cause established before the structure.

The second is a fully drawn overdraft that has not moved in two years. That is term debt in a revolving wrapper, and it is discovered at review — usually alongside a request to reduce it. An owner in that position often does not know they are at risk until the letter arrives.

The third is asking for a limit far larger than the swing, on the theory that headroom is free. It is not: the limit is assessed, priced and reviewed on its size, and an unused limit still consumes the borrower's capacity for the next facility.

What lenders look at differently

A term facility is assessed on whether the business can carry a fixed repayment. A limit is assessed on the shape of the trading account — how far it swings, how often it returns to credit, and whether the tightest point of the month is getting tighter. Bank statements matter more for a limit than for a term loan, and serviceability is tested differently as a result.

Appetite also splits by tier. Overdrafts and lines of credit sit most naturally with banks and second-tier lenders holding the trading relationship; unsecured term lending is where the non-bank market concentrates. That mapping is in who lends to Australian businesses.

Where La Vitesse fits

Structure is the broker's call, not ours. What arrives is the enquiry: amount, stated purpose, timeframe and the borrower's own notes, which is usually enough to tell a repeating gap from a one-off purchase before you dial.

Every business loan lead is sold once, to one broker, never resold, delivered to your inbox or CRM in real time. Pay per lead, no lock-in contracts, no setup fees. The lead is an introduction, not a recommendation.

Common questions

Is an overdraft cheaper than a term loan?

Not usefully comparable. An overdraft charges on what is drawn, so a facility used lightly can cost very little and a facility used constantly can cost a great deal. Comparing headline rates between a revolving limit and an amortising facility tells you almost nothing about what either will actually cost this business.

Can a business hold a term loan and an overdraft together?

Commonly, and it is often the correct answer: the term facility funds the purchase, the limit absorbs the trading swing. The risk is accumulation — three facilities from three lenders on three review dates, none of which were designed to sit alongside the others.

What does repayable on demand mean in practice?

That the lender can call the facility rather than waiting for a term to expire. In normal conditions it is rarely exercised, but it is why a limit is a weaker foundation than a term facility for a business with lumpy revenue — the risk is not the pricing, it is the timing.

Which structure suits a seasonal business?

Usually a limit, because the need genuinely repeats and the account returns to credit each cycle. The complication is the review date: a seasonal business reviewed at its weakest point presents very differently than one reviewed at its strongest.

Do the enquiries you sell say which structure the borrower wants?

They state a purpose and an amount in the borrower's own words, which usually indicates whether the need is a gap or a purchase. What they do not do is name a product, because most owners do not think in products.