What a line of credit costs once the fees are counted

One facility has many prices, and the one you pay is decided by your own behavior rather than by the agreement. Two businesses can hold identical facilities and pay wildly different amounts per dollar borrowed, because one draws heavily and briefly and the other keeps a small balance open all year.

That is unusual. On most borrowing, the price is set at signing. Here the agreement sets the mechanism and you supply the rest.

What to take away

Charges that accrue with the balance at zero

These are the ones people do not budget for, because they do not feel like the price of borrowing.

Unused line or commitment charge. Levied on availability you are not using. Counterintuitive until you see it from the other side: the lender is holding capacity for you and cannot lend it to anyone else.

Common U.S. range: 0.10% to 0.50% of the undrawn amount per year.

Maintenance or servicing. A standing charge for the account existing, usually monthly or annual.

Common U.S. range: $0 to $500 per year.

Renewal. Payable at each anniversary or review, whether or not anything changes.

Common U.S. range: $0 to $1,000 per review.

Set-up and filing costs. Paid once, but they belong here because they are incurred before a dollar is drawn, and a lien has a cost to terminate as well as to file.

Common U.S. range: $0 to $1,000 one time.

None of these appear inside a quoted interest rate, because none of them are interest. They are the reason the effective cost of a rarely used facility can be very high while its rate looks modest.

A clearly labelled illustrative example, not a quote: a $100,000 line at 10.00% with a $40,000 average drawn balance, a 0.25% annual unused fee on the $60,000 average undrawn amount, $250 annual maintenance, $500 annual renewal, and 12 draws at $25 each costs $5,200 for the year. Divided by the $40,000 actually used, that is 13.00%.

Charges that accrue only when you draw

Interest on the drawn balance. Establish the accrual basis: daily balance behaves differently from a monthly average or a period-end snapshot. On a daily basis, repaying three days earlier is genuinely three days cheaper, and the timing of a draw relative to a weekend or a month end is worth a moment's thought.

Draw charges. Applied per draw regardless of how briefly the money is out. On a pattern of many small draws, these can outweigh the interest entirely. On a pattern of few large ones, they barely register.

Common U.S. range: $10 to $50 per draw.

Minimums. A minimum draw, a minimum outstanding balance, or a minimum charge per period. Any of these puts a floor under your cost that your usage pattern cannot get below.

Common U.S. range: $100 to $5,000 minimum draw, or $50 to $250 minimum monthly charge.

What moves a variable rate. If the rate is not fixed, ask which index it follows, how often it resets, and whether there is a floor beneath it. A floor means the rate stops falling at a point of the lender's choosing while remaining free to rise.

The Federal Reserve publishes the U.S. prime rate. Common U.S. range for unsecured lines: prime plus 2.00% to prime plus 10.00%. Illustration: if the index is 7.50% and the spread is 3.00%, the rate is 10.50%.

To turn all of this into one comparable figure, add the year's charges together and divide by the average balance you actually carried across the whole year, not by the limit.

The pattern that makes it cheap or expensive

Because the standing charges are fixed and the drawn charges are not, the cost per dollar borrowed is a division: everything you paid, over everything you actually used.

Using the illustrative example above: at $40,000 average drawn, the effective cost is 13.00%; at $80,000 average drawn, the same $100,000 line with the same fees and a 10.00% rate costs $9,100 for the year, or 11.38% of the $80,000 used; at $5,000 average drawn, it costs $1,787.50, or 35.75% of the $5,000 used.

The last pattern is structural, not a pricing problem, and the clean-up provision in your agreement exists to surface it. If you cannot clear the balance for the required window, the facility funds what it was not built to fund.

Compare the cost of holding it there against a term loan sized to the real need.

The costs that never reach a statement

These are the expensive ones, and none of them is quoted.

What a blanket filing reaches. A filing over all business assets rather than one identified asset is publicly searchable, typically extends to assets you acquire after it is filed, and stands in the way of other financing while it remains. It also needs an active termination once the debt is cleared, which does not happen by itself. The cost is your future optionality, and you pay it every time you go looking for money elsewhere.

What a personal guarantee reaches. It removes the separation between the business and you. Establish whether it is capped or unlimited, whether it is joint and several among owners, meaning any one of you can be pursued for the whole amount, whether a spouse is being asked to sign, which extends it to jointly held assets, and what releases it. Guarantees routinely survive the sale of a business and outlive the facility they were signed for. The provisions are set out in application and repayment.

An availability block. Where the limit is derived from reported collateral, a slow month can reduce what you may draw without anything being formally changed. The cost is that the facility is smallest when you most need it. How that calculation works is covered in lines of credit requirements.

The reporting. Certificates, aging reports and statements on a cadence. This is real recurring labor, and it is part of what the facility costs you even though nobody bills for it.

What to establish before you sign

Ask for the complete schedule of charges, including everything payable at a zero balance, and get it in writing. Then ask which of them apply and which do not, rather than assuming an item that was not mentioned does not exist. The structural background to how a facility is priced is in lines of credit.

Where to check anything specific

Every rate, fee and charge comes from the institution offering it and changes without notice. For neutral background on business financing, the SBA business guide and the FDIC's Money Smart for Small Business sell nothing.

Common questions

Why do I pay anything when I have borrowed nothing?

Because the lender is reserving capacity for you. Charges on availability are the price of the option, and they are separate from interest.

Is a facility I rarely use worth keeping?

Sometimes, but decide it with the number in front of you. Divide the standing charges by the borrowing you actually expect, and see what the option is costing per dollar.

Do draw charges matter?

They matter enormously to anyone who draws often in small amounts, and hardly at all to anyone who draws rarely in large ones. Your pattern decides.

What is the most expensive part of a facility?

Usually not anything on the statement. A blanket filing that blocks better financing elsewhere, or a guarantee with no release path, costs more over time than the interest does.