Do I Pay for a Business Line of Credit I Don't Use?
Often you pay nothing on the unused portion, since interest or fees apply only to what you draw. Some lines do charge a maintenance, annual or unused line fee, so check the fee schedule before you sign.
How is a line of credit usually set up?
With most lines, cost is tied to draws. No draws, no draw fees and no interest. That's what makes a line a flexible safety net.
Which fees apply even if you don't draw?
- Annual or maintenance fees.
- Unused line fees, a small charge on the undrawn portion.
- Setup or origination fees at opening.
- Inactivity fees, on some lines.
Why do providers charge them?
Keeping a line open costs the provider something, since it has to stand ready to fund. Some recover that with fees; others don't.
Do you need to keep the line active?
Some providers close lines that sit unused. A small draw repaid promptly now and then keeps the line active and builds history.
How do you compare lines?
Compare the full fee schedule, including fees on unused funds, along with draw costs. A line with no maintenance fee but higher draw costs ends up costing more if you use it often.
When does a line pay for itself?
A line you rarely use but that saves you from a cash crunch once or twice a year is often worth a small annual fee.
What should you read in the agreement?
Look for fee schedules, the definition of inactivity and any review terms.
What does an unused line really cost?
Even with no fees, an unused line has value only if it's there when you need it. Some providers reduce or close lines that sit idle, sometimes without much warning. If the line is part of your plan for slow months or emergencies, keep it active with occasional small draws, and read the review terms so you know what triggers a change.
How do draw fees compare with interest?
Some lines charge a fee on each draw, others charge interest on the outstanding balance, and some do both. A draw fee costs the same whether you repay in a week or a month, much like a fixed fee. Interest rewards quick repayment. Know which you have, because it changes how you should use the line.
Are there setup costs?
If a line has an origination or setup fee, divide it across the time you expect to keep the line open. A modest fee on a line you'll keep for years costs little per month. The same fee on a line you'll use once costs a lot.
Why ask for the full fee schedule?
Request the complete fee schedule in writing before you sign, including anything charged monthly, annually, per draw, on the unused portion or for inactivity.
How can Afterfirst help with this?
Call 877-FUND-654 and we'll compare line of credit offers in our network, including every fee, used or unused.
What else do owners ask about this?
- How much can I draw on a business line of credit?
- Why was my business line of credit reduced or closed?
- Can I have a line of credit and an MCA at the same time?
More short answers on this topic are on the revenue-based financing and lines of credit FAQ, and the factor rate calculator runs the numbers for your own file.
Have a question we didn't answer?
Ask us on the call. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.