Estimate your line of credit interest and monthly costs
Amount currently drawn
Typical: 7-25% for business LOC
Percentage of outstanding balance
Monthly Interest Charge
$0.00
Credit Utilization: 0%
Minimum Payment
$0.00
Available Credit
$0.00
Annual Interest
$0.00
Daily Interest
$0.00
A business line of credit (LOC) is a revolving credit facility that gives businesses access to funds up to a predetermined credit limit. Unlike a term loan that provides a lump sum with fixed payments, a line of credit allows you to draw funds as needed and pay interest only on the amount you actually use.
Lines of credit are incredibly flexible—you can draw funds for inventory purchases, payroll, equipment repairs, or unexpected expenses. Once you repay the borrowed amount, the credit becomes available again, making it an ongoing financing solution rather than a one-time loan.
Business lines of credit come in two forms: secured (backed by collateral like accounts receivable or inventory) and unsecured (based primarily on creditworthiness). Secured lines typically offer higher limits and lower interest rates, while unsecured lines are faster to obtain but more expensive.
Calculating line of credit costs involves understanding how interest accrues on your outstanding balance. Here's the process:
Monthly Interest = Outstanding Balance × (APR ÷ 12)
Daily Interest = Outstanding Balance × (APR ÷ 365)
Minimum Payment = Outstanding Balance × Min Payment %
Available Credit = Credit Limit − Outstanding Balance
Credit Utilization = (Outstanding Balance ÷ Credit Limit) × 100
$100,000 credit limit with $50,000 outstanding at 10%:
| Credit Limit | $100,000.00 |
| Outstanding Balance | $50,000.00 |
| Interest Rate | 10% |
| Monthly Interest | $416.67 |
| Daily Interest | $13.70 |
| Minimum Payment (2%) | $1,000.00 |
| Available Credit | $50,000.00 |
| Credit Utilization | 50% |
The credit limit is the maximum amount you can borrow on your line of credit. Limits vary based on business revenue, credit history, and whether the line is secured. Typical business line of credit limits range from $10,000 to $500,000 for small businesses, with larger lines available for established companies.
Lenders determine credit limits by evaluating your business's annual revenue (typically 10-20% of revenue), credit score, time in business, and financial health. Secured lines backed by collateral like accounts receivable or inventory can qualify for higher limits.
Having a higher credit limit can improve your credit utilization ratio, but it also represents potential debt. Use your credit responsibly and only draw what your business actually needs.
The outstanding balance is the amount you've currently drawn from your line of credit. This is the figure on which interest is calculated. Unlike a term loan where the balance decreases on a fixed schedule, a line of credit balance fluctuates based on your borrowing and repayment.
Your outstanding balance directly affects your monthly interest charges. A higher balance means more interest, while a lower balance means less. This is the fundamental difference between lines of credit and term loans—you have control over your interest costs by managing your balance.
Monitoring your outstanding balance helps you make informed decisions about borrowing. If your balance is consistently near your credit limit, consider whether your credit needs are actually a fixed loan rather than a revolving line.
Interest charges on a business line of credit are calculated on your outstanding balance. The key advantage is that you only pay interest on what you use—unlike a term loan where you pay interest on the entire amount from day one.
Interest is typically calculated daily using your daily balance. This means every day you carry a balance, you accrue interest. The daily rate is your APR divided by 365. Monthly interest is then the sum of daily interest charges.
Here's how different balances affect monthly interest on a 10% APR line: