Business Line of Credit Calculator
Understand line of credit costs and optimal usage. Calculate interest, fees, and effective rates for better credit management.
How the Business Line of Credit Calculator works
Analyze credit line terms, utilization patterns, and costs. Calculate interest at various draws, effective APR, and compare to alternative financing with cash flow impact analysis.
Lines of credit offer flexibility but can be expensive. This calculator optimizes usage, minimizing costs while maintaining liquidity for opportunities.
How it works
Tutorial
Lines of credit provide flexibility but come with fees and interest that can surprise inexperienced borrowers. Understanding true costs at different utilization levels helps optimize usage—drawing when needed but minimizing expensive borrowed capital.
You have two options: use the calculator above to model credit line scenarios, or follow this guide to manually calculate line of credit costs.
The Formula
| Cost Component | Formula |
|---|---|
| Monthly Interest | (Amount Drawn × Annual Rate) ÷ 12 |
| Unused Line Fee | (Available – Drawn) × Unused Fee % |
| Effective APR | (Total Costs ÷ Average Balance) × 100 |
Step-by-Step Calculation
Here’s a complete cost analysis for a $100,000 line of credit.
Step 1: Calculate Interest Costs
Determine interest based on actual usage:
| Scenario | Amount Drawn | Annual Rate | Monthly Interest |
|---|---|---|---|
| 25% Utilization | $25,000 | 8% | $167 |
| 50% Utilization | $50,000 | 8% | $333 |
| 75% Utilization | $75,000 | 8% | $500 |
Calculation: ($50,000 × 0.08) ÷ 12 = $333/month at 50% usage
Step 2: Add Fees and Charges
Calculate additional costs beyond interest:
| Fee Type | Amount |
|---|---|
| Annual Maintenance Fee | $500 |
| Unused Line Fee (0.5% on $50k) | $250 |
| Draw Fee (1% on $50k drawn) | $500 |
| Total Annual Fees | $1,250 |
Calculation: $500 + $250 + $500 = $1,250 in fees
Step 3: Calculate Effective APR
Determine true cost including all fees:
| Step | Calculation | Result |
|---|---|---|
| Annual Interest | $333 × 12 | $3,996 |
| Plus Annual Fees | $3,996 + $1,250 | $5,246 |
| Average Balance | $50,000 drawn | $50,000 |
| Effective APR | ($5,246 ÷ $50,000) × 100 | 10.49% |
Final Answer: True cost is 10.49% APR, not the stated 8%
What This Means
While the stated rate is 8%, fees increase your effective cost to 10.49%. Lines of credit work best for short-term cash flow gaps—if you need money long-term, a traditional loan typically costs less.
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