On a business line of credit, interest is charged only on the part drawn, and the partner's limit caps how much can be out at once. This post follows an invented $28,000 line through six weeks of draws and repayments, then prices two minimum payment shapes, the fees an agreement may list, a card comparison and a line held beside a term loan.
An invented $28,000 line shows repaid draws coming back to the available balance on a revolving line and not on a non-revolving one. Interest-only payments on an $18,640 balance run $216.69 a month without reducing it. Fees, a card surcharge set against $90.58 of line interest, and a line beside a machine loan follow. All figures are invented.
Business line of credit draws on a revolving line versus a non-revolving one
On a revolving line, each dollar repaid becomes available to draw again until the agreement ends or the limit changes. On a non-revolving line, the limit shrinks with each draw, and repaying a draw lowers the balance without restoring what can be drawn. Both carry the name line of credit, so the agreement's wording on repayment and availability is the part to read before signing.
Illustration only, invented figures: a Fall River, MA wholesale distributor holds a $28,000 line and makes these moves over six weeks.
| Week | Move | Left to draw, revolving | Left to draw, non-revolving |
|---|---|---|---|
| Week 1 | Draw $9,600 for a supplier bill | $18,400 | $18,400 |
| Week 3 | Draw $6,250 for a payroll gap | $12,150 | $12,150 |
| Week 5 | Repay the $9,600 draw | $21,750 | $12,150 |
| Week 6 | Draw $11,300 for a stock order | $10,450 | $850 |
In the invented case, the two lines look alike until week 5. After the $9,600 repayment, the revolving line has $21,750 to offer again, while the non-revolving line still shows $12,150, and the week 6 draw leaves it with $850. A business that expects to draw and repay several times a year fits the revolving kind; a single project can sit on either.
Commercial line of credit payments: interest only, or interest plus a slice of the balance
A line agreement sets how the monthly payment is figured. Some lines ask only for the month's interest during the draw period; others add a fixed share of the balance, so the debt shrinks every month. The first keeps the payment small and the balance unchanged; the second asks more each month and ends the debt.
Illustration only, invented figures: an $18,640 balance on a line priced at 13.95% a year. A month of interest, figured at one twelfth of the annual rate, comes to $216.69. If the agreement instead asks for interest plus 1/24 of the balance, the first payment is $993.36, and $776.67 of it reduces the balance.
Continuing the invented case: six interest-only months cost $1,300.14 and leave the $18,640 balance where it started. That shape can suit a gap that a known receivable will close; for a balance with no payoff date in sight, it only puts the paydown off.
How to get a business line of credit, and the fees a line agreement can list
Getting a line through Meadowside Credit begins with a call or the request form, which asks about time in business, annual revenue and the amount in mind. A funding partner that offers a line sets its limit, rate and fees, and may ask for bank statements, tax returns or a list of current debts before doing so. Whether to accept stays with the owner.
Interest is not the only cost a line can carry. Charges an agreement may list include:
- A charge when the line is set up
- An annual or renewal charge to keep the line open
- A charge on each draw, flat or a percentage of the amount drawn
- A charge on whatever part of the limit sits undrawn
- Late charges, and a higher rate after a missed payment
Asking for every charge in writing, next to the rate, lets an owner compare one offer with another on what the line would cost across a year of expected draws.
A credit line or a business credit card for a supplier that adds a card surcharge
A business credit card pays for purchases wherever cards are taken; a credit line moves cash into the business bank account, so it can also cover payroll, rent or a supplier that takes only checks or bank transfers. When a supplier adds a surcharge for card payments, that surcharge belongs in the comparison.
Illustration only, invented figures: a $7,900 parts bill with a 3% card surcharge costs $237 extra on a card. Drawn from the 13.95% line above and repaid after 30 days, the same bill carries $90.58 of interest, counting the year as 365 days.
Still in the invented case: a card balance paid in full within its grace period may carry no interest, so the $237 surcharge is the number to set against the line's $90.58. Had the card balance rolled past the grace period, the card's own rate would apply on top of the surcharge.
A line of credit vs a term loan: carrying both at once
A term loan fits a cost with a long working life, such as a machine; a line fits gaps that open and close. A business can hold one of each, and then the question is what both payments take from the month together.
Illustration only, a second invented business: a $46,300 machine on a term loan at 9.45% for 60 months asks $971.26 a month. A line balance averaging $12,400 at 14.8%, interest only, adds $152.93. Together the two take $1,124.19 a month, the figure to hold against the month's deposits.
With the same invented numbers, putting the machine on the line instead would keep the whole $46,300 at 14.8% and tie up a limit meant for short gaps. The line of credit page prices draws for payroll and raw material, and the working capital page covers fixed-term loans for a single gap. Other posts sit on the Meadowside Credit blog.
By Meadowside Credit · Updated
