Business Line of Credit Cost Calculator
Calculate your line of credit costs
Enter your credit limit, drawn amount, interest rate, days drawn, and any facility fee to see total interest, fees, and effective annualised cost.
Understanding the true cost of a business line of credit
A business line of credit is a flexible borrowing facility that lets you draw funds as needed and repay them when cash flow allows. Unlike a term loan, you only pay interest on the amount you have actually drawn, not the full credit limit. This makes it an efficient tool for managing short-term cash flow gaps, covering payroll during slow periods, or funding inventory purchases ahead of peak seasons.
The cost of a line of credit has two main components. The first is interest on the drawn balance, calculated based on how much you borrow and for how long. The second is a facility fee (also called a commitment fee or non-utilisation fee), which is charged annually on the total credit limit regardless of whether you draw on it. The facility fee compensates the lender for keeping funds available to you.
Because lines of credit are used intermittently, the effective annualised cost of using the facility can be much higher than the stated interest rate implies, especially if you use a small proportion of the limit for short periods. This calculator combines interest and facility fees to give you the total dollar cost and the effective annualised rate on the amount drawn, which lets you compare the true cost against alternative funding sources.
Revolving versus non-revolving lines of credit
Most business lines of credit are revolving: you draw, repay, and draw again as needed within the credit period. A non-revolving line works more like a term loan: once you draw and repay, that portion of the limit is gone. Revolving facilities offer more flexibility and are the more common structure for working capital purposes.
When should I use a line of credit versus a term loan?
A term loan is better for discrete, one-time capital needs such as purchasing equipment, renovating a premises, or funding a specific expansion project. A line of credit is better for ongoing working capital needs where the amount required fluctuates month to month. Using a term loan for working capital is inefficient because you pay interest on the full amount from day one, even if you do not use all the funds immediately.
What are typical business line of credit rates?
Rates depend on your business credit profile, revenue history, the lender, and current market interest rates. Bank-based business lines of credit typically range from Prime plus 0.5 to 2 percent. Online lenders may charge significantly higher rates. SBA Community Advantage loans and SBA CAPLines offer competitively priced lines of credit for eligible small businesses. Always compare the effective rate rather than just the stated interest rate.
