Business Line of Credit Calculator
See what a draw really costs — interest on the drawn balance only, fees folded into a true APR, and how it stacks up against a term loan for the same need.
Written by Dorothy Ibrahim, 10+ years in banking & finance
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How we calculate this
This calculator prices a single draw on a business line of credit: interest accrues on the drawn balance only, never the unused limit, and every fee — draw fees, monthly maintenance, prorated annual fees — is folded into a true APR so the quoted rate cannot hide the real cost. It also answers the comparison owners actually face: for this specific need, would a term loan at the same rate cost more or less?
The formulas
- Monthly payment (amortizing)
- the drawn amount amortized at the annual rate over the repayment horizon
- Monthly payment (interest-only)
- drawn amount × (annual rate ÷ 12), with the full principal due at the end of the horizon
- Total fees
- draw fee % × draw + monthly maintenance fee × months + annual fee × (months ÷ 12)
- Total cost
- total interest + total fees
- True APR
- the internal rate of return on the actual cash flows: draw minus the draw fee received now, versus each payment plus monthly fees going outFees charged upfront or monthly raise the APR above the nominal rate even though the rate itself never changes.
- Utilization
- draw ÷ credit limitAbove roughly 80%, sustained utilization can affect renewal — a rule of thumb.
Worked example
- Say you draw $40,000 of a $100,000 line at 14% and repay it over 12 months with no fees.
- The amortizing payment is $3,591.48/month.
- Total interest is $3,097.82, and with zero fees the true APR equals the nominal rate: 14.00%.
- Utilization is $40,000 ÷ $100,000 = 40% — comfortably below the ~80% rule-of-thumb threshold.
- Compared with a 12-month term loan for the same $40,000 at the same 14%, the cost difference is $0 — with no fees, a LOC and a term loan price identically; the LOC's advantage is that next month you can draw again without reapplying.
Rates, benchmarks & sources
- Payment, interest, and the fee-inclusive APR are computed entirely from your inputs. — Standard amortization and internal-rate-of-return math (no external constants)
- The 1–3% per-draw fee range noted in the draw-fee field, and the ~80% utilization caution for renewals. — Industry rule of thumb
Figures current as of 2026-07-02. See our methodology & editorial standards for how constants are versioned and verified.
What this tool doesn’t model
- Models one draw repaid over one horizon — a real line with multiple overlapping draws and revolving payments will produce different totals.
- This is an estimate, not an offer: approval, your rate, your limit, and renewal are all up to the lender's underwriting, and most lines are variable-rate, repricing as the index moves.
- The interest-only mode assumes you can pay the full principal at the end of the horizon; it does not model rolling the balance over (which keeps interest accruing).
- Lines of credit are typically subject to annual review — the lender can reduce or freeze the limit, which this tool does not model.
- The term-loan comparison uses the same rate for both products; in the market, term-loan and LOC rates for the same borrower often differ.
Frequently asked questions
Do I pay interest on the whole credit limit or just what I draw?
Only on what you draw. In the default example, the unused $60,000 of the $100,000 limit costs nothing in interest — though some lenders charge maintenance or annual fees just to keep the line open, which is why this tool folds those fees into the APR. A line you never draw can still cost money; a line you draw costs interest only on the drawn balance.
When is a line of credit better than a term loan?
When the need is recurring or uncertain. For a one-time, known expense, a term loan at the same rate costs exactly the same — the worked example shows a $0 difference. The LOC earns its keep when you draw, repay, and draw again: you avoid reapplying each time, and you pay interest only while money is out. If fees push the LOC's APR meaningfully above the term-loan rate, the convenience has a measurable price.
Why is my APR higher than my interest rate?
Fees. A draw fee is taken out of your proceeds, and maintenance or annual fees add to every month's outflow — so the cash you got is smaller and the cash you pay is bigger than the rate alone implies. The APR re-solves the rate on those actual cash flows. The tool warns you when fees push the APR more than 3 points above the nominal rate.
What does the interest-only toggle change?
Instead of amortizing, you pay only interest each month — $466.67 on the default $40,000 draw at 14% — and the entire principal comes due at the end of the horizon. Total interest is higher ($5,600 versus $3,097.82 over 12 months) because the balance never declines. It preserves monthly cash flow at the cost of a large final payment you need a plan for.
Does high utilization really matter if I make every payment?
It can. Persistently drawing more than about 80% of the limit is a rule-of-thumb signal lenders read as dependence on the line rather than short-term smoothing, and it can influence renewal terms or the limit itself at annual review. It is guidance, not a rule — but if you are always near the cap, that is often a sign the need is permanent and better served by term debt.
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themoneysheet provides educational estimates, not financial, tax, or legal advice. Figures use published rates and formulas current as of the date shown, but your situation may differ. Consult a qualified professional (CPA, attorney, or licensed advisor) before making financial decisions. Rates shown are estimates; actual offers depend on lender underwriting.