Business Line of Credit Calculator
Calculate monthly cost, total interest, and effective APR on your business line of credit. Toggle between interest-only and full payoff scenarios.
How much of the LOC you've drawn
Most business LOCs are Prime + 1-12%
How many months to fully pay off the current draw
Typical Business LOC Rates (2025):
Bank LOC
7-12%
Online LOC
12-30%
Monthly Payment
$1,883
Pays off draw in 24 months
Total Interest
$5,191
Available
$60,000
Utilization
40%
Effective Annual Cost
12.98%
Includes interest + all fees
| Month | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| 1 | $1,882.94 | $1,482.94 | $400.00 | $38,517 |
| 2 | $1,882.94 | $1,497.77 | $385.17 | $37,019 |
| 3 | $1,882.94 | $1,512.75 | $370.19 | $35,507 |
| 4 | $1,882.94 | $1,527.87 | $355.07 | $33,979 |
| 5 | $1,882.94 | $1,543.15 | $339.79 | $32,436 |
| 6 | $1,882.94 | $1,558.58 | $324.36 | $30,877 |
| 7 | $1,882.94 | $1,574.17 | $308.77 | $29,303 |
| 8 | $1,882.94 | $1,589.91 | $293.03 | $27,713 |
| 9 | $1,882.94 | $1,605.81 | $277.13 | $26,107 |
| 10 | $1,882.94 | $1,621.87 | $261.07 | $24,485 |
| 11 | $1,882.94 | $1,638.09 | $244.85 | $22,847 |
| 12 | $1,882.94 | $1,654.47 | $228.47 | $21,193 |
When a Business LOC Makes Sense
Cover payroll, rent, or operating expenses during temporary cash flow shortfalls without disrupting operations.
- Pay only for what you draw
- Repay and reuse the line
- Faster than applying for a new loan each time
Stock up before your busy season and repay the line as sales come in — perfect for retailers, contractors, and event businesses.
- Match draws to inventory cycles
- Avoid tying up cash reserves
- Scale up purchasing power
Bridge the gap between paying vendors (AP) and collecting from customers (AR) — common when customers pay net 30/60/90.
- Keep vendors paid on time
- Pay down when invoices clear
- Maintain strong supplier relationships
Frequently Asked Questions
How a Business Line of Credit Works
A business line of credit (LOC) is revolving credit — a pre-approved pool of funds you can draw from, repay, and draw from again. Unlike a term loan that disburses one lump sum, a LOC works more like a credit card: you only pay interest on the amount you've drawn, not the full credit limit. Once you repay principal, that capacity becomes available again.
Most business LOCs have two phases: a draw period (typically 1-5 years) where you can borrow up to the limit and usually make interest-only payments, followed by a repayment period where the line closes to new draws and you amortize the outstanding balance with principal + interest payments over 3-5 years. Some LOCs are evergreen and renew annually upon underwriting review.
LOCs come in two flavors: secured (backed by collateral like accounts receivable, inventory, or equipment — lower rates, higher limits) and unsecured (no collateral but personal guarantee usually required — higher rates, smaller limits, faster approval).
| Feature | Bank LOC | Online LOC | Business Credit Card |
|---|---|---|---|
| Typical rates | 7-12% | 12-30% | 14-29% |
| Credit limits | $10k - $5M+ | $5k - $500k | $1k - $100k |
| Draw method | Bank transfer, checks | Same-day ACH | Card swipe, transfers |
| Approval time | 2-4 weeks | 1-3 days | Minutes to days |
| Fees | Annual + draw fees | Draw fees, monthly fees | Annual fee, cash advance fees |
| Credit needed | 680+ | 600+ | 670+ |
| Best for | Established businesses | Speed, lower credit | Small recurring purchases, rewards |
Cost of a Business Line of Credit
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 for a Business LOC (and When to Avoid One)
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.