Business Line of Credit Calculator

A business line of credit is a pre-approved borrowing limit that you can draw from as needed. Unlike a loan where you receive a lump sum, a line of credit works like a credit card: borrow up to your limit, pay it back, and borrow again. Interest accrues only on what you borrow. Most lines have variable rates tied to prime rate plus a margin. They're useful for short-term cash gaps, seasonal fluctuations, or working capital needs. They should be repaid within 6-12 months.

The cost depends on rate, borrowed amount, borrowed duration, and fees. At 8% interest on $50,000 for 12 months, interest alone is roughly $4,000. Add $500 annual maintenance fee, $250 unused line fee, and $500 draw fee, and true cost is roughly $5,250, or 10.5%. A cheaper line at 6% with no annual fee costs roughly $3,000 for the same scenario. True cost is always higher than the advertised rate because of fees. Use this calculator to compare specific offers.

An unsecured line of credit requires no collateral. The lender approves credit based on credit score, revenue, profitability, and personal guarantee. Most small business lines of credit are unsecured. Unsecured credit typically costs 1-2% more in interest than secured credit because lenders carry more risk. Secured credit requires collateral like equipment, real estate, or receivables, and costs less. If you have assets to pledge, secured credit is usually cheaper. If not, unsecured is the only option.

A secured line of credit is backed by collateral such as equipment, inventory, real estate, or accounts receivable. The lender can seize the collateral if you default. Secured lines typically cost 1-2% less in interest than unsecured lines. For a $100,000 line, that's $1,000-$2,000 annual savings. Secured lines are often available at larger sizes and better terms than unsecured. The trade-off is the lender has a claim on your assets if you can't repay.

Common fees include annual maintenance (typically $250-$500), unused line fee (typically 0.25-0.75% annually of unused portion), draw fee (typically 0.5-1% per draw), and sometimes transaction fees. Some lenders charge minimum balance fees or cancellation fees. These add 1-2% to the stated interest rate. A 8% line with all fees included costs roughly 10-11% true APR. When comparing lines, ask for an all-in cost calculation including all fees. This calculator aggregates fees so you see the total.

Calculate interest by multiplying the amount borrowed times the annual interest rate, then dividing by 12 for monthly interest. For $50,000 borrowed at 8% annual rate, monthly interest is ($50,000 × 0.08) ÷ 12 = $333. Interest accrues daily, so the daily rate is $333 ÷ 30 = $11.10 daily. As you pay down the balance, interest decreases proportionally. If you pay $10,000 principal within 30 days, your balance drops to $40,000 and next month's interest drops to $267. This is why quick repayment saves significantly on lines of credit.

APR (Annual Percentage Rate) on a line of credit includes interest plus all fees annualized. A line advertising 8% interest with $500 annual fee and 0.5% unused line fee has an effective APR higher than 8%. The exact APR depends on how much you borrow and for how long. If you borrow the full $100,000, the APR is lower because you're using all the approved credit and avoiding unused line fee. If you borrow half, the APR is higher because the fee spreads across less principal. Use this calculator to compute actual APR for your specific borrowing scenario.

Use a line of credit for short-term borrowing (under 12 months). It's more flexible because you borrow as needed and pay only interest on outstanding balance. Use a loan for longer-term needs (1-5+ years). A loan provides certainty: fixed rate, predictable payments, and usually lower overall cost for longer terms. If you need $50,000 for 6 months (seasonal working capital), a line of credit is efficient. If you need it for 3 years, a term loan is cheaper. If you're unsure how long you'll need it, a line is more flexible.

Getting a line of credit with bad credit is harder but possible. Banks are more hesitant and charge higher rates. Credit score below 580 makes approval difficult. Above 660 is significantly easier. If you have bad credit, consider these options: secured line backed by collateral or savings account, which reduces lender risk. Non-traditional lenders like online platforms often have more lenient credit requirements, though rates are higher. Improve your credit before applying if possible: pay down debt and fix errors on your credit report. A 50-point credit improvement can save 1-2% in interest.

Most lines of credit are technically available indefinitely, but many lenders require annual review and renewal. Some renew automatically if you're in good standing. Some require you to access the line at least once per year or pay fees. If you don't use a line, the lender might close it. Unused lines are valuable as backup, so maintain them even if you don't draw. An unused $50,000 line costs only the annual maintenance fee (maybe $250-$500 annually) but provides safety net if cash gets tight. Ask your lender about maintenance requirements and fees for inactive lines.

If you can't repay a line of credit, the lender will declare the account in default after typically 30-60 days of missed payments. This damages your credit score significantly and remains on your credit report for 7 years. The lender can accelerate the loan (demand immediate full repayment), pursue legal action, and seize collateral if it's a secured line. If the line is personally guaranteed, the lender can come after your personal assets. The best strategy is to communicate with the lender before missing a payment. Many will work out restructured terms rather than declare default.

Pay back by making regular payments to the lender. You can pay minimum interest-only payment (keeps the debt indefinitely), pay fixed monthly amounts (fixed term repayment), or pay in full at any time (ideal). Interest decreases as principal balance drops. To minimize total cost, pay back as quickly as your cash flow allows. If you borrowed $50,000 for a seasonal cash gap and received full payment from customers, pay back the entire balance immediately rather than carrying it at 10%+ cost. Lines of credit should be temporary cash bridges, not permanent financing.

Both work similarly: borrow up to a limit, pay interest, and repay as you use. The differences are cost and purpose. Business lines of credit typically have lower rates (6-12%) than business credit cards (12-18%+). Lines are designed for larger amounts ($10K-$500K+) and longer terms, while cards are for smaller amounts and shorter terms. Business lines have annual fees and withdrawal fees, while many cards have no annual fee but higher interest. Lines are for business cash flow management. Cards are for operational expenses and cash flow timing. Use a line for working capital and a card for monthly expenses.

Yes, pay off a line of credit as early as your cash flow allows. Unlike some loans with prepayment penalties, lines of credit encourage quick payback. Every day the balance sits costs money in interest. If you have the cash to pay it off, do it immediately. The only reason to keep a balance is if you need it for cash flow. Once the underlying need is resolved (seasonal sales ended, customer paid you, receivables collected), pay the balance to zero and close the line if you don't need future backup.

Working capital financing is short-term borrowing to cover the gap between when you pay expenses and when you collect revenue. If you pay inventory suppliers in 7 days but collect customer payments in 60 days, you have a 53-day gap. Working capital financing covers that gap. A line of credit is a common working capital tool. As you collect revenue, you pay back the line. This is efficient because you borrow only what you need and repay quickly. Without working capital financing, growing businesses can run out of cash despite being profitable.