This Plumhill Capital Group calculator, from Hendersonville, North Carolina, prices a credit line draw from the numbers you enter. Treat the output as arithmetic on your inputs; any real rate, fee or limit is set by a funding partner.
How Does Business Line of Credit Interest Work on a Partial Draw?
On most business lines of credit, interest runs only on the balance drawn, for the days it is out. A partial draw on a large limit costs interest on the draw, not on the limit.
Invented example, illustration only: a business with a $100,000 limit draws $20,000 for 30 days at an invented annual rate of 11%. Interest is about $180.82 ($20,000 x 11% x 30/365, our arithmetic). The unused $80,000 of the limit costs nothing unless the agreement charges an unused-line or annual fee.
Some lines compute interest daily and bill it monthly; others use a 360-day year, which makes the same rate cost slightly more. The agreement says which.
Business Line of Credit Usage Across a Year of Uneven Draws
A seasonal business draws and repays several times a year. Adding each draw's interest gives the year's cost.
| Draw | Days out | Interest (our arithmetic) |
|---|---|---|
| $25,000 | 60 | $452.05 |
| $15,000 | 30 | $135.62 |
| $30,000 | 45 | $406.85 |
The three invented draws total $70,000 and cost about $994.52 in interest for the year (our arithmetic). A term loan of the same peak size, outstanding all year, would cost several times as much, which is the case for a line when the money is needed in bursts.
Invented example, illustration only: if the same three draws were instead covered by a single $30,000 term loan outstanding for the whole year at the same invented 11%, interest would be close to $3,300 for the year (our arithmetic, $30,000 x 11%, before any paydown), against the much smaller figure above.
Business Line of Credit Interest Inputs: Balance, Days and Rate You Enter
The calculator above uses the standard loan formula: enter the amount drawn, the annual rate from an offer and the number of months over which the draw will be paid down in equal installments.
Invented example, illustration only: a $30,000 draw paid down over 6 months at an invented annual rate of 11% gives an installment of about $5,162 and total interest of about $970 (our arithmetic).
For a draw repaid in one payment, use the days method instead: balance x rate x days / 365. For a balance that moves daily, average the balance over the month first.
Limits, renewals and draw fees are covered on the business line of credit page.
What the Interest Estimate Leaves Out: Fees, Renewal and Approval
An interest estimate leaves out the costs that do not depend on the balance: an origination or annual fee, draw fees, an unused-line fee, renewal fees and any required minimum balance. It also cannot say whether a partner will approve the line, at what limit, or whether the line will be renewed next year.
When comparing offers, add every fee for the year to the interest on the draws you expect to make. A lower rate with a high annual fee can cost more than a higher rate without one when the line is lightly used.
To ask about a line, call (828) 374-4055 or use the request form.
Ask each partner three questions about a line before comparing rates: how interest is computed (daily balance, average balance or month-end balance), which fees apply each year whether or not the line is used, and what happens at renewal if the business's revenue has dipped. The answers often decide which offer costs less over a real year of draws.
By Plumhill Capital Group · Updated