Business Line of Credit Calculator

The headline interest rate is only part of the cost. A complete LOC cost analysis includes several fee categories:

• Draw fees: 1-3% of each draw amount (common with online lenders like BlueVine and Fundbox; rare with traditional banks).
• Maintenance / monthly fees: $25-$150/month flat charge, regardless of usage.
• Inactivity fees: Some banks charge $50-$200/quarter if the line goes unused.
• Annual renewal fees: $150-$500/year to maintain the line.
• Origination fees: 0.5-3% of the credit limit at setup.
• Prepayment penalties: Rare on LOCs, but verify before signing.

Variable rates: Most business LOCs are priced as Prime + spread. With Prime around 7.5% in mid-2025, a Prime + 4% LOC costs 11.5% — but if Prime rises to 9%, your rate jumps to 13% with no notice required beyond standard disclosure. Fixed-rate LOCs exist but are rare.

Effective APR captures the true annual cost including all fees. The headline rate may be 12%, but with a 2% draw fee and $50/month maintenance fee, the effective APR on a $40,000 draw paid off over 12 months is closer to 15-17%.

Worked example: You have a $100,000 LOC at 12% APR with a 1% draw fee and $25/month maintenance fee. You draw $40,000 and pay it back over 24 months with principal + interest payments.

• Monthly payment: ~$1,883 (P+I) + $25 maintenance = ~$1,908/month
• Total interest paid: ~$5,200
• Draw fee: $400 (1% of $40,000)
• Maintenance fees: $600 ($25 x 24 months)
• Total cost of borrowing: ~$6,200 on $40,000 — an effective annual cost of ~15.5%

Best uses:

• Working capital: Cover day-to-day operating expenses during temporary cash flow dips.
• Payroll bridge: Make payroll when a large customer payment is delayed.
• Seasonal inventory: Stock up before peak season, repay as sales come in.
• AR/AP timing: Pay vendors on net-30 terms while waiting on net-60 customer payments.
• Emergency cushion: Available capital for unexpected repairs, opportunities, or short-term shocks — even if you never draw, having access is valuable.
• Marketing campaigns: Fund a campaign with measurable short-term ROI.

When a LOC is the WRONG tool:

• Equipment purchases → Use an equipment loan instead. Equipment loans use the equipment itself as collateral, often qualify for Section 179 deduction, and offer fixed terms aligned with the asset's useful life (3-7 years). LOC rates are usually 3-8% higher than equipment loans.
• Long-term expansion (new location, acquisition, build-out) → Use an SBA 7(a) or term loan. Match long-term assets with long-term financing. Funding a 10-year expansion with a 3-year LOC creates refinancing risk.
• One-time large purchase (real estate, vehicle fleet) → Term loan. Fixed rate, predictable payments, often lower rate than a LOC.
• Covering chronic losses → A LOC is a tool for timing mismatches, not for funding unprofitable operations. Address the underlying profitability issue first.

Rule of thumb: use a LOC for short-term, flexible needs you'll repay within 12 months. For anything longer or larger, term financing usually costs less and reduces refinancing risk.