Business line of credit calculator: what a draw really costs
A line of credit charges interest only on what you draw — but the interest is rarely the whole price. Enter a draw and the fees around it, and this works out the dollars, the payment, and the annual rate that draw actually carries once a per-draw fee is counted. Nothing to sign up for, and nothing is sent anywhere.
The size of the whole line.
Interest applies to this, not to the limit.
Usually an index plus a margin — see how lines are priced.
Some lines charge one, some do not. Set it to 0 if yours does not.
How long this draw stays out.
How often a payment is taken.
Equal payments clear the principal as they go; interest only repays it at the end.
Charged whether or not you draw, if your agreement has one.
For the yearly view below.
Input shortcuts only — not offer sizes, credit limits, or what you may qualify for.
$845 of interest plus a $375 fee on the draw, over six monthly payments.
Annual percentage rate, solved against the payment schedule with the draw fee included.
5.2 points above the 11.5% quotedOne draw is not how a line gets used. A line is used repeatedly, and a fee charged on every draw is charged again every time — which is where the cost of a revolving facility usually ends up sitting.
Four draws of $25,000, each repaid over six months. Fees are 31% of what the line costs you for the year.
Four draws each held for six months add up to 24 months of borrowing inside a 12-month year, so some of these draws overlap and your outstanding balance will at times be higher than a single draw.The rate shown is the periodic rate that makes the scheduled payments equal the cash you received, annualised the way an annual percentage rate is — the same method used on the factor rate calculator. It covers interest and the draw fee. A monthly fee for keeping the line open is not caused by drawing, so it is reported in the yearly figures rather than folded into that rate. Fundur is a financing marketplace, not a lender; this tool prices a structure, it does not make an offer.
The draw fee is the part the quoted rate does not show
On a term loan, the rate and the cost move together. On a line of credit they can come apart, because a fee charged on each draw is a fixed cost attached to a variable amount of time. The shorter the draw, the more that fixed cost is worth in annual terms — which makes the cheapest-looking use of a line quietly the most expensive one.
The interest rate on the drawn balance
A $25,000 draw at 11.5%, repaid in six equal monthly payments, costs $845 in interest. That is the number the rate describes, and it is correct.
It is also the only number most line-of-credit calculators produce, including the ones currently ranking for this search.
The rate once a 1.5% draw fee is counted
The fee is $375. Against $845 of interest that looks minor — but it is paid once, up front, for six months of use, so in annual terms it is worth 5.2 percentage points.
Same lender, same rate, same draw. The fee moved the price by almost half again.
Why a short draw is the expensive one
Paying money back quickly feels like the cheap option, and on interest alone it is: a two-month draw of $25,000 costs $360 in interest against $3,104 over twenty-four months. But the draw fee does not shrink with the term. It is $375 either way, and it buys two months of use in one case and twenty-four in the other. Hold the rate at 11.5% and the fee at 1.5%, change nothing but how long the draw stays out, and the annual rate it carries moves like this:
| Draw outstanding for | Interest | Draw fee | Cost of the draw | Rate it actually carries |
|---|---|---|---|---|
| 1 month | $240 | $375 | $615 | 29.5% |
| 2 months | $360 | $375 | $735 | 23.6% |
| 3 months | $481 | $375 | $856 | 20.6% |
| 6 months | $845 | $375 | $1,220 | 16.7% |
| 12 months | $1,585 | $375 | $1,960 | 14.3% |
| 24 months | $3,104 | $375 | $3,479 | 13.0% |
Read the last column downwards and the shape is clear: the cost of the money falls as the term shortens, while the rate it carries rises. Both are true at once, and they answer different questions. The dollar figure answers “what did this cost me.” The rate answers “what was this money worth to borrow” — which is the one you need when you are comparing a line against anything else.
The size of the gap depends on the fee, not on the rate
One more property, because it makes a fee structure easy to judge in your head: the number of percentage points a draw fee adds barely changes with the interest rate. A 1.5% fee on a six-month draw adds about 5.2 points whether the rate quoted is 4% or 24% — 5.18 points at 0% and 5.31 points at 36%. What moves it is the fee itself, and how long the draw stays out.
A rough rule, for six-month draws. Each 0.5% of draw fee adds roughly 1.7 percentage points to the rate: 0.5% adds 1.7, 1% adds 3.5, 1.5% adds 5.2, 3% adds 10.5. Halve the draw period and the addition roughly doubles.
How a business line of credit actually charges you
A line of credit has two numbers people routinely mix up: the limit, which is what you were approved for, and the balance, which is what you have taken and not yet repaid. Interest generally accrues only on the drawn, outstanding balance. Approval on its own does not start the meter.
Drawn balance, limit, and what comes back
Draw $25,000 against a $100,000 limit and $75,000 is left available. As you repay principal, availability is restored — that is what makes a line revolving rather than a loan. On the default figures the first payment puts about $4,068 of principal back, taking availability to roughly $79,068, and by the final payment the whole $100,000 is available again. The schedule further down this page shows that period by period.
Two consequences follow, and they pull in opposite directions. Because you pay only for what you use, a line suits a gap you dip into and clear. Because availability comes back, a line is also the easiest facility to sit on permanently without noticing — at which point you are paying a revolving rate on what has become a long-term balance, and a term loan would very likely have been cheaper.
The charges a line can carry
Interest is one line item among several. Which of these appear, and at what level, varies by lender and by agreement — and the ones that matter most to the arithmetic are not always the ones quoted first.
| Charge | How it usually works | What it does to the arithmetic |
|---|---|---|
| Interest | An annual rate applied to the outstanding drawn balance, most often variable: a published index plus a margin the lender sets for your business. | Scales with both the amount and the time. The only charge the quoted rate describes. |
| Draw fee also called a transaction or advance fee | A percentage of each amount drawn, charged at the time of the draw. | Fixed per draw, so its effect on the rate rises as the draw gets shorter and as you draw more often. |
| Monthly or annual fee maintenance, servicing, or a fee on undrawn capacity | Charged for having the line available, whether or not you draw on it. | Does not belong in the rate on a draw, because it is not caused by drawing. It is a cost of access — and the reason an unused line is not automatically a costless one. |
| Origination or set-up fee | Charged once when the line is opened, rather than per draw. | Spreads across everything you draw over the life of the line, so it weighs most on a line you barely use. |
| Prepayment terms | On an amortising draw, whether clearing it early releases the remaining interest. | Decides whether paying a draw off ahead of schedule actually saves anything. Worth reading before you rely on it. |
An unused line, and what it still costs
Set the draw to zero in the calculator and the interest goes to zero with it: an undrawn line accrues no interest, which is the single biggest structural advantage it has over a lump sum. What that does not mean is that an idle line is necessarily costless. Fees associated with keeping a line open, or with undrawn capacity, vary by lender and agreement, and some lines carry them. That is what the monthly-fee field is for — put in what your agreement says and the yearly figures will show what the line costs in a year you never touch it.
Equal payments, or interest only
The repayment shape moves the figures more than most people expect, and not in the direction you would guess. The same $25,000 at 11.5% over six months:
$4,308 a month · $845 interest · 16.7%
Principal comes down from the first payment, so the balance carrying interest falls the whole way through. Less interest in total.
A higher rate, though, because you had the use of the full $25,000 for a much shorter average time.
$240 a month · $1,438 interest · 14.6%
The balance stays at $25,000 until the end, so the interest bill is 70% higher. The monthly payment is a fraction of the amortising one.
A lower rate, though: you kept the money the whole time, so each dollar of cost bought more use.
Neither is the better deal in the abstract. Interest-only costs more money and less rate; equal payments cost less money and more rate. Which suits you depends on whether the binding constraint is total cost or monthly cash flow.
A line, a lump sum, and when a line is the wrong tool
The calculator above prices a line. It deliberately does not price a term loan beside it, because that comparison needs assumptions about how often you draw and how long each draw stays out — and those assumptions do more work than the rates do.
The honest version of that comparison has its own page, with a second calculator built for it: business loan versus line of credit runs one amount through three structures — a fully amortised term loan, a line drawn in pieces, and a line whose balance is simply held — at a single rate, so structure is the only variable. If you are still choosing between the two, start there and come back here once you know which one you are pricing. The short version:
A line wins on partial, repeated use
Money needed in pieces, for weeks at a time, repaid and redrawn. You pay for the days you use, and no interest on capacity you leave alone. How a line works
A lump sum wins on a single known amount
One purchase, one number, repaid over years. A term loan prices that more cheaply than a line used the same way, and there is no draw fee to repeat. Business term loans
Neither wins when the gap is an invoice
If the constraint is money already earned and not yet paid, the cost prices against the invoice rather than the business, which is a different calculation again. Invoice factoring
One case is worth naming directly, because the arithmetic above makes it visible. If you draw frequently, in small amounts, against a line with a per-draw fee, the fee can become the largest single component of what you pay — on the default figures it is roughly a third of the yearly cost, and on short draws more than half of it. At that point the question stops being which line to use and becomes whether a facility priced per draw is the right shape at all. A working capital loan priced as interest on a single advance can cost less for the same pattern of need, and what you could realistically borrow is worth knowing before either conversation.
What the draw looks like period by period
The table below is generated from whatever is in the calculator at the top of the page. It shows the balance carrying interest, what each payment is made of, and — the column a loan schedule does not have — how much of the line is available to draw again at the end of each period.
| Month | Opening balance | Payment | Interest | Principal | Closing balance | Available |
|---|---|---|---|---|---|---|
| 1 | $25,000 | $4,308 | $240 | $4,068 | $20,932 | $79,068 |
| 2 | $20,932 | $4,308 | $201 | $4,107 | $16,825 | $83,175 |
| 3 | $16,825 | $4,308 | $161 | $4,146 | $12,679 | $87,321 |
| 4 | $12,679 | $4,308 | $122 | $4,186 | $8,493 | $91,507 |
| 5 | $8,493 | $4,308 | $81 | $4,226 | $4,267 | $95,733 |
| 6 | $4,267 | $4,308 | $41 | $4,267 | $0 | $100,000 |
Interest in each period is the opening balance multiplied by the annual rate divided by the number of periods in a year. The final payment is adjusted by cents so the balance closes at exactly zero. The draw fee is charged once and is not shown in this table; it appears in the figures above and in the yearly totals.
What this calculator does not estimate
Worth being plain about, because a calculator that hides its assumptions is worse than none.
- It does not tell you whether you would be approved, or for how much. It prices a structure you describe. Limits, rates and fees come from a lender looking at your business.
- It assumes the rate holds still. Most lines are variable — a published index plus a margin, resetting periodically. A draw repaid over two years at a rate that moves will not match a fixed-rate calculation, and the longer the draw the wider the divergence.
- It assumes every scheduled payment is made on time and in full. Late fees, returned-payment fees and default pricing are not modelled, and they are usually the most expensive numbers in an agreement.
- It prices one draw at a time in the detail view. The yearly figures multiply a single draw by how often you make one; where those draws overlap in time your actual outstanding balance will be higher than the schedule shows, and the calculator says so when that happens.
- It excludes an origination fee charged once when the line is opened, because that cost belongs to the line rather than to any one draw. Spread it across everything you expect to draw in the first year to see what it adds.
- It is not a quote. Figures for an actual offer come from the lender making it, in writing, before you accept.
What it is good for is the step that tends to get skipped: putting two structures that sound similar into the same units and seeing which is actually dearer. That works best on real numbers. If you have an agreement in front of you, enter what it says rather than what the headline rate implies — the fee fields are where the difference usually hides.
Business line of credit calculations, answered
How is interest calculated on a business line of credit?
Interest applies to the outstanding drawn balance rather than to the credit limit. In each period the balance is multiplied by the annual rate divided by the number of periods in a year, so $25,000 outstanding at 11.5% accrues about $240 in a month. As you repay principal the balance falls and the interest falls with it. Drawing nothing accrues no interest, because there is no balance for the rate to apply to.
What is the monthly payment on a $25,000 draw?
It depends on the repayment shape. Repaid in equal monthly payments over six months at 11.5%, a $25,000 draw is about $4,308 a month, of which $240 is interest in the first month. On an interest-only structure the monthly payment is about $240 with the $25,000 repaid at the end. Change any input at the top of this page and both figures update.
Why is the APR higher than the interest rate I was quoted?
Because a rate describes interest only, while an annual percentage rate describes everything you pay to borrow. If your line charges a fee on each draw, that fee is part of the cost of the money but not part of the rate. On a $25,000 draw repaid over six months, a 1.5% draw fee of $375 lifts an 11.5% rate to about 16.7%. Where there is no draw fee, the two figures are the same.
Does a shorter draw cost less?
In dollars, yes. In rate, no, and the difference matters when you are comparing options. Interest shrinks with time, but a fee charged on the draw does not, so a fixed fee spread over two months is worth far more in annual terms than the same fee spread over two years. On the default figures a one-month draw carries about 29.5% and a twenty-four-month draw about 13.0%, at the same rate and the same fee.
Does an unused business line of credit cost anything?
An undrawn line accrues no interest, which is the main structural advantage it has over a lump sum. Whether it carries anything else depends on the agreement: fees associated with keeping a line open, or with undrawn capacity, vary by lender and some lines do charge them. Enter whatever yours says in the monthly fee field to see what a year of simply holding the line would cost.
How do I work out what a line of credit costs over a year?
Count the draws rather than the balance. Work out the interest and the fee on one typical draw, multiply by how many draws you expect in the year, and add any monthly charge for keeping the line open. The yearly panel in the calculator does exactly that. It is usually the number of draws, not the rate, that decides the answer, because four draws a year means four draw fees.
Is this the same as a HELOC or personal line of credit calculator?
No. The arithmetic of interest on a drawn balance is similar, but the structures are not: a home equity line is secured against a property and priced accordingly, and a personal line is underwritten on an individual rather than on a business. This calculator models a business line of credit, including per-draw fees, amortising or interest-only draws, and availability that revolves as you repay.
Are these figures exact?
The arithmetic is exact for the inputs given, and assumes equal scheduled payments at a rate that does not move. Real lines differ: most carry variable rates, fees vary by lender and agreement, and a draw taken mid-period accrues from the day it is taken rather than from the start of a month. Treat the output as the right way to compare structures rather than as a quotation. Fundur is a financing marketplace, not a lender, so figures for any actual offer come from the lender making it.
You know what the structure costs. The next question is which structure is available to you.
One application, compared across lenders, with the total cost and the rate shown together on every offer — in the same units this page has just put them in. Checking takes minutes, and nothing is committed by looking.
Fundur is a financing marketplace, not a lender. Checking your options uses a soft credit pull and does not affect your credit score.