Commercial Line of Credit: What Does It Cost?
The cost of a commercial line of credit includes interest on the outstanding balance plus any fees the lender charges. Because interest accrues only on drawn amounts, the total cost depends heavily on how much you draw, for how long, and at what rate — factors that vary significantly by lender and borrower profile.
The two main cost components
Commercial line of credit costs generally fall into two categories: interest charges and fees.
Interest is calculated on the outstanding balance at an annualized rate. If you draw $50,000 at 12% annual interest for six months, the interest component is $3,000 — regardless of the overall credit limit.
Fees are one-time or recurring charges that add to the total cost. They can include origination fees, draw fees, annual or monthly maintenance fees, and unused line fees.
Typical interest rate ranges
Interest rates on commercial lines of credit vary widely depending on the lender type, facility structure, and borrower profile. Rates are not standardized and change with market conditions.
| Lender type | Typical rate range | Notes |
|---|---|---|
| Traditional bank | Prime + 1%–5% | Strongest borrowers; longer approval |
| Credit union | Prime + 1%–4% | Member-based; may have lower rates |
| Online / alternative | 15%–60%+ APR | Faster approval; broader eligibility |
| SBA 7(a) line | Prime + 2.25%–4.75% | Government-backed; specific eligibility required |
Rate ranges are illustrative and change with market conditions. They are not offers. Your rate depends on your specific profile and lender.
Common fees explained
Understanding each fee type helps you calculate true cost and compare offers accurately.
- Origination fee: 1%–3% of the credit limit, charged at closing
- Draw fee: 0.5%–2% of each draw amount
- Annual fee: $150–$500 or more for maintaining the facility
- Monthly maintenance fee: $25–$100 per month whether drawn or not
- Unused line fee: 0.1%–0.5% annualized on the undrawn portion
- Prepayment fee: Some lenders charge for early repayment
How borrower profile affects cost
Pricing is risk-based. Borrowers with longer operating history, stronger revenue, better credit, and lower existing debt generally receive lower rates. A business with a 750 credit score and $500K in annual revenue will typically pay less than one with a 620 score and $150K in revenue — sometimes by a factor of three or four.
Using the cost calculator
The CLOC calculator lets you model different draw amounts, rates, fee structures, and durations to estimate total financing cost. Use it to compare two hypothetical scenarios before accepting any offer.
A $75,000 draw at 18% annual rate for 9 months with a 1% origination fee ($750) would carry roughly $10,125 in interest plus $750 in fees = approximately $10,875 total. These are illustrative estimates — actual lender terms will differ.
Frequently Asked Questions
- Is the interest rate on a line of credit fixed or variable?
- Both exist. Many bank lines use a variable rate tied to the prime rate or SOFR. Alternative lenders often quote a fixed factor rate or fixed APR. Read the agreement to confirm whether your rate can change.
- Do I pay interest on the full credit limit or just what I've drawn?
- Interest typically accrues only on the outstanding balance — the amount you've actually drawn and not yet repaid. Some facilities charge a small fee on the undrawn portion, but that is usually much lower than the draw rate.
- How can I reduce the cost of a line of credit?
- Improve your credit score before applying, pay down existing debt, seek facilities with no origination or draw fees, repay draws quickly to minimize outstanding balances, and compare multiple lender offers.