cost-calculation
Business Line of Credit Calculator (2026) — LOC Payment, Interest & Utilization
A business line of credit is not a term loan — and the difference matters for cost. With a LOC you pay interest only on what you draw, not on the full credit limit. A $200K line with $50K drawn costs $50K worth of interest; the remaining $150K sits available at no charge until you need it. This calculator shows the real monthly cost at your draw level, the structural advantage vs a term loan, and what it looks like under both interest-only and fully-amortizing repayment modes.
Educational estimate based on the inputs you entered — not financial, legal, or tax advice. Verify against your specific situation before acting on this output.
How it works
Methodology
Inputs
- Credit limit ($)
- Total approved line amount. Interest is NOT charged on this number — only on the drawn balance.
- Amount drawn ($)
- Outstanding balance you've borrowed. Interest accrues on this amount only. Can range from $0 (unused line) to the full credit limit.
- APR (%)
- Annual interest rate on the drawn balance. Most LOCs are variable-rate; this calculator holds the rate constant. Confirm with the lender.
- Repayment mode
- Interest-only: monthly payment = drawn × (APR ÷ 12). Amortizing: standard monthly payment that retires the full drawn balance over N months.
- Horizon / term (months)
- Interest-only mode: number of months to project interest cost (principal still owed at end). Amortizing mode: payoff term in months.
Formula
Interest-only monthly payment = drawn × (APR / 100 / 12) Total interest (interest-only) = monthly payment × horizon months Total repaid (interest-only) = total interest + drawn principal Amortizing monthly payment = drawn × r / (1 − (1 + r)^−N) where r = APR / 100 / 12, N = term months Total repaid (amortizing) = monthly payment × N Total interest (amortizing) = total repaid − drawn Utilization % = drawn / credit limit × 100
Assumptions
- Rate is held constant over the horizon. LOC rates are typically variable (Prime + spread); actual payment changes as the index moves.
- Interest-only mode does not model compounding of unpaid principal — assumes interest is paid each month and the drawn balance stays constant.
- Amortizing mode uses the standard fully-amortizing formula with no balloon, no interest-only ramp.
- Does not model origination fees, annual fees, draw fees, or non-usage fees — all of which increase the true cost of a LOC. Ask the lender for the all-in cost.
- Approval odds context: the Federal Reserve's 2024 Small Business Credit Survey found 54% of applicants who sought financing at small banks were approved in full — a materially better full-approval rate than most alternative online lenders report, but it requires the credit profile and documentation a bank underwrites for.
- Disclosure-law context: as of 2026, 10 states require commercial financing providers to give borrowers a standardized cost disclosure before signing — a business line of credit is covered under most of these laws' open-end/closed-end financing tracks. Confirm current requirements in your state.
- Not an offer, not approval, not a binding pre-qualification. Educational estimator only.
Worked examples
$50K limit · $20K drawn · 12% APR · Interest-only
- Credit limit
- $50,000
- Amount drawn
- $20,000
- APR
- 12%
- Mode
- Interest-only
- Horizon
- 12 months
Monthly interest: $200. Total interest over 12 months: $2,400. Utilization: 40% — well within the healthy range. The remaining $30,000 limit costs nothing until drawn. Total repaid at month 12: $22,400 (interest + principal).
$100K limit · $60K drawn · 14.5% APR · Amortize 24mo
- Credit limit
- $100,000
- Amount drawn
- $60,000
- APR
- 14.5%
- Mode
- Amortize
- Term
- 24 months
Monthly payment ≈ $2,897. Total interest ≈ $9,528. Total repaid ≈ $69,528. Utilization: 60% — moderate. Amortizing over 24 months keeps payments predictable and clears the draw before a typical LOC renewal cycle.
$25K limit · $25K drawn · 18% APR · Amortize 12mo
- Credit limit
- $25,000
- Amount drawn
- $25,000
- APR
- 18%
- Mode
- Amortize
- Term
- 12 months
Monthly payment ≈ $2,292. Total interest ≈ $2,504. Total repaid ≈ $27,504. Utilization: 100% — fully drawn. At 18% APR, paying down over 12 months keeps total interest cost modest ($2,504). At 100% utilization there's no remaining buffer; consider whether a slightly larger line would preserve flexibility.
Frequently asked
Questions readers ask
How does interest on a business line of credit work? +
Interest accrues only on the outstanding drawn balance — not the full credit limit. If you have a $100K line and draw $30K, you pay interest on $30K. As you repay principal, the interest charge drops proportionally. This is the revolving structure: repay principal and the capacity becomes available to draw again.
What is the difference between interest-only and amortizing repayment on a LOC? +
Interest-only means you pay only the interest charge each month — the principal stays outstanding until you choose to repay it or the draw period ends. Amortizing means you make fixed monthly payments that pay down both principal and interest over a defined term, exactly like a term loan. Many LOCs allow interest-only draws for a set period (often 12-24 months) followed by an amortizing repayment phase. Confirm the structure with the lender.
What APR should I expect on a business line of credit in 2026? +
Directional ranges in 2026: bank-tier revolving LOCs typically run 7–12% APR, often pegged to Prime plus a spread (so the rate adjusts as the Fed moves). Non-bank LOCs typically run 12–20% APR. Alt-credit revolving products can run higher. Your actual rate depends on FICO, time-in-business, monthly revenue, deposit consistency, and existing debt. Confirm with the lender — don't assume the rate you see in a headline applies to your file.
Does drawing on a line of credit hurt my credit score? +
Drawing increases your credit utilization — the ratio of outstanding balance to credit limit — which is a factor in business credit scoring. Keeping utilization below 30-50% of the limit is generally recommended to protect your score. The calculator shows your utilization percentage so you can see where a planned draw lands relative to that threshold.
When is a line of credit better than a term loan? +
A LOC is the right tool for recurring, variable working capital needs — inventory cycles, seasonal cash gaps, bridging receivables, or keeping an emergency buffer available. A term loan is cleaner for a single, defined capital event (equipment purchase, build-out, acquisition) because it disburses the full amount at funding. The cost comparison flips depending on how much of the limit you actually draw and for how long.
This tool is for educational purposes only and is not financial, legal, or tax advice. Final terms and eligibility depend on lender underwriting; consult a tax professional before acting on tax-tool output. ClearValue Lending is a funding platform.
https://clearvaluelending.com/tools/business-line-of-credit-calculator