Estimate your monthly payments on a business line of credit based on the amount drawn and payment structure.
Interest-Only
Percentage of Balance
Understanding Your Commercial Line of Credit
A commercial line of credit (LOC) is a flexible financing tool that provides businesses with access to a fixed amount of capital. Unlike a traditional term loan, where you receive a lump sum upfront, an LOC allows you to draw funds as needed, up to your credit limit. You only pay interest on the amount you've drawn, not the entire credit line. This makes it an ideal solution for managing cash flow, covering unexpected expenses, or seizing short-term opportunities.
How to Use the Calculator
Our calculator helps you estimate the monthly payment for a specific draw on your line of credit. Here's what each field means:
Total Credit Limit ($): The maximum amount of money your lender has approved for your business to borrow.
Amount Drawn ($): The portion of your credit limit you are currently using or plan to use. Your payment is based on this amount.
Annual Percentage Rate (APR %): The yearly interest rate charged on your outstanding balance. LOCs often have variable rates tied to a benchmark like the Prime Rate, but you can enter a fixed rate here for estimation.
Payment Calculation Type: This determines how your minimum monthly payment is calculated.
Interest-Only: During the "draw period," many LOCs only require you to pay the interest that has accrued that month. This results in a lower payment but does not reduce your outstanding principal balance.
Percentage of Balance: Some LOCs require a payment that covers the monthly interest plus a small percentage (e.g., 1-3%) of the principal balance. This helps you pay down the debt over time.
Example Calculation
Let's say a consulting firm has a $150,000 line of credit to manage payroll between client payments. They draw $40,000 to cover expenses. Their LOC has an APR of 9.5% and is currently in an interest-only payment period.
In this scenario, the firm's estimated minimum monthly payment would be $316.67. This payment covers the interest, but the principal balance of $40,000 remains unchanged.
Benefits and Considerations of a Business LOC
Pros:
Flexibility: Draw, repay, and redraw funds as your business needs fluctuate.
Cost-Effective: You only pay interest on the funds you use, which can be cheaper than a term loan if you don't need all the capital at once.
Cash Flow Management: Acts as a financial safety net to bridge gaps between accounts receivable and payable.
Cons:
Variable Rates: Most LOCs have variable interest rates, meaning your payment could increase if benchmark rates rise.
Discipline Required: The ease of access to funds requires financial discipline to avoid taking on excessive debt.
Fees: Be aware of potential annual fees, draw fees, or inactivity fees associated with the account.
A commercial line of credit is a powerful tool for maintaining financial agility. Use this calculator to understand potential costs and plan your borrowing strategy effectively. Always consult with your lender or a financial advisor to find the best solution for your specific business needs.
function togglePrincipalPercentage() {
var paymentType = document.getElementById("paymentType").value;
var principalGroup = document.getElementById("principalPercentageGroup");
if (paymentType === 'percentageOfBalance') {
principalGroup.style.display = 'flex';
} else {
principalGroup.style.display = 'none';
}
}
function calculateLOC() {
var creditLimit = parseFloat(document.getElementById("creditLimit").value);
var amountDrawn = parseFloat(document.getElementById("amountDrawn").value);
var apr = parseFloat(document.getElementById("apr").value);
var paymentType = document.getElementById("paymentType").value;
var principalPercentage = parseFloat(document.getElementById("principalPercentage").value);
var resultDiv = document.getElementById("locResult");
if (isNaN(creditLimit) || isNaN(amountDrawn) || isNaN(apr) || creditLimit <= 0 || amountDrawn <= 0 || apr creditLimit) {
resultDiv.innerHTML = "Amount Drawn cannot be greater than the Total Credit Limit.";
return;
}
var monthlyRate = apr / 100 / 12;
var monthlyInterest = amountDrawn * monthlyRate;
var monthlyPayment = 0;
var principalPaid = 0;
if (paymentType === 'interestOnly') {
monthlyPayment = monthlyInterest;
principalPaid = 0;
} else if (paymentType === 'percentageOfBalance') {
if (isNaN(principalPercentage) || principalPercentage <= 0) {
resultDiv.innerHTML = "Please enter a valid Principal Payment Percentage.";
return;
}
var principalPortionPayment = amountDrawn * (principalPercentage / 100);
monthlyPayment = principalPortionPayment;
// The total payment must at least cover the interest.
if (monthlyPayment < monthlyInterest) {
monthlyPayment = monthlyInterest;
}
principalPaid = monthlyPayment – monthlyInterest;
}
var newBalance = amountDrawn – principalPaid;
resultDiv.innerHTML = "
Estimated Monthly Results
" +
"Estimated Monthly Payment: $" + monthlyPayment.toFixed(2) + "" +
"Monthly Interest Charge: $" + monthlyInterest.toFixed(2) + "" +
"Principal Paid This Month: $" + principalPaid.toFixed(2) + "" +
"Remaining Balance After Payment: $" + newBalance.toFixed(2) + "" +
"This is an estimate for one month based on the amount drawn. Actual payments may vary.";
}