Prime borrower question
Do I pay interest on the whole line of credit or only what I draw?
Many business lines of credit charge interest on the amount actually drawn, but the facility can also carry establishment, line, annual or other fees based on the limit. Read the facility terms rather than comparing only the drawn rate.
What changes the answer
Separate the drawn interest cost from fees on the approved limit.
Model average utilisation as well as the peak limit.
What to check before acting
A large mostly-unused line can be valuable standby liquidity, but only if the fee is justified by the business need.
- Use your actual balance, price, term and fees.
- Keep the comparison on the same time horizon.
- Check any tax-sensitive or contract-specific point against the current source document.
Run the numbers
Compare working-capital structures
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Compare working-capital structuresSources and verification
General information only. It is not personal financial, tax or legal advice. Finance approval, pricing and structure are subject to lender assessment and your circumstances.