How business line of credit payments work
With a line of credit you only pay interest on what you draw, not on the full limit. Lenders structure payments in a few common ways, so this page has three calculators:
- Interest-only: you pay just the interest each month and repay the balance when you can. For example, a $30,000 balance at an example rate of 15% costs about $375 a month in interest.
- Payoff time: you pay a set amount each month until the balance is gone. Use it to see how long a balance will take to clear.
- Fixed repayment: each draw is repaid in equal payments over a set term, often 6 to 24 months, sometimes with a draw fee.
Line of credit vs. term loan
A line of credit is best for recurring or unpredictable needs such as payroll gaps, inventory, or seasonal swings, because you draw only what you need and can reuse the line. A term loan is usually better for a one-time purchase with a clear payback. See line of credit vs. loan for a full comparison, and the amortization calculator to model a term loan.
Costs to check besides the rate
- Draw fees charged each time you take money out
- Annual or maintenance fees charged whether or not you use the line
- Variable rates that rise with the prime rate
- Weekly payments on some online lines, which affect cash flow more than monthly payments
Learn what lenders look for on our business lines of credit page.
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Frequently asked questions
How do I calculate interest on a line of credit?
Multiply the balance you have drawn by the annual rate, then divide by 12 for a monthly estimate or by 365 for a daily estimate. A $30,000 balance at 15% is about $375 a month in interest.
What is an interest-only line of credit payment?
It is a payment that covers only the interest on your balance. It keeps the payment low, but the balance does not go down until you pay more than the interest.
How long will it take to pay off my line of credit?
Enter your balance, rate, and monthly payment in the payoff calculator. If your payment does not exceed the monthly interest, the balance will never be paid off.
Do I pay interest on the unused part of my credit line?
Usually not. Interest is charged on what you draw, but some lines charge annual, maintenance, or unused-line fees, so check your agreement.
Is a line of credit cheaper than a term loan?
It can be, because you only pay for what you use. If you carry the full balance for a long time, a term loan with a lower rate may cost less. Compare both with the calculators.
Sources
- 7(a) loan program terms, conditions, and eligibility, U.S. Small Business Administration
Disclaimer: This calculator is for educational and comparison purposes only and does not constitute a loan offer, financial advice, tax advice, or a guarantee of terms. Example values are illustrations, not quotes. SmallByzLoans is a funding marketplace, not a lender or financial advisor.