Business Line of Credit Calculator

A business line of credit costs two things: interest on what you actually draw, plus a commitment fee on what you don't. Unlike a term loan, you only pay interest on the outstanding balance. The commitment fee (typically 0.25-0.50% per year on the undrawn portion) is the price of having the capacity available when needed.

500k credit limit with 200k average drawn over 12 months at 8% interest = 16,000 interest on drawn portion. Unused 300k × 0.25% = 750 commitment fee. Total cost 16,750. Effective rate on used capital is 8.38%, slightly higher than headline interest because of the commitment fee.

LOC is expensive when left mostly unused. A 1M facility used at 20% average has effective rates 50-80% above the headline interest rate because the commitment fee dominates cost. If utilisation stays under 30% over time, term loans sized to expected need almost tends to exceed LOC on total cost.

Run it with sensible defaults

Using credit limit of 500,000, avg balance drawn of 200,000, interest rate of 8%, unused fee of 0.25%, the calculation works out to 16,750.00. The defaults are meant as a starting point, not a recommendation.

The levers in this calculation

The inputs — Credit Limit, Avg Balance Drawn, Interest Rate %, Unused Fee %, and Months Used — do not pull with equal force. Not every input has equal weight. Adjusting one input at a time toward extreme values shows which ones move the result most.

How the math works

Interest = balance × monthly rate × months. Unused fee = (limit - balance) × unused % × months/12. Total = interest + unused fee.

Reading a low result

A disappointing result is information, not a judgement. The input that dragged the figure down most is usually where a single change has the largest effect, since depth on the worst input tends to move the result more than spreading effort across every input at once.

What this doesn't capture

The result reflects only the inputs you provide and the assumptions built into the formula. It is a simplified model rather than a complete picture, and factors specific to your situation may matter just as much.