A line of credit has no single price. It has an interest mechanism, a stack of fees that attach at different moments, and one counterintuitive law: the same line costs more per dollar the shorter you carry the draw, because the fixed fees don’t shrink when the interest does. This page walks the full stack on real numbers — the same worked draw the line of credit calculator computes, taken apart line by line — so you can price any offer in front of you. The billing process itself is taught in how a line of credit works; here the process appears only as a cost input.
General information, not financial advice.
Interest accrues only on the outstanding drawn balance, starting the day of the draw — the undrawn limit costs no interest. Most lenders compute it by the average daily balance (ADB) method:
Daily interest = balance × (APR ÷ 365), summed over each day of the billing cycle
Lendio’s published example makes it concrete: $10,000 at 12% APR accrues about $3.29 a day, roughly $98–$99 over a 30-day month at a constant balance. Two wrinkles matter. Some lenders use a 360-day year, which quietly raises the effective rate on the same stated APR (Lendio). And for planning purposes the field uses a monthly approximation — APR ÷ 12 — which is what the calculator and the worked example below use; on a constant $10,000 at 12% that gives $100.00 a month against ADB’s ≈$98.63. Know which method your agreement uses before you argue over a statement.
Take the calculator’s validation case: a $40,000 draw at 12% APR, held through a 12-month draw period, then repaid over 24 months, on a line charging a $175 annual fee:
| Cost element | Amount |
|---|---|
| Interest-only payment during the draw period | $400.00/month |
| Interest across the 12-month draw phase | $4,800.00 |
| Repayment-phase payment (24 months) | $1,882.94/month |
| Interest across the repayment phase | $5,190.53 |
| Total interest, both phases | $9,990.53 |
| Annual fees (3 charges across the 36-month horizon) | $525.00 |
| Total cost of the draw | $10,515.53 |
| Total repaid ($40,000 principal + cost) | $50,515.53 |
Read the table the way a lender hopes you won’t: the interest is only part of the invoice, and it keeps running for two years after the draw period ends. The draw felt like a one-year decision; it was a three-year, $10,515.53 one.
Now shrink the carry. Draw the same $40,000 for one month instead of three years and the stack reads: interest about $400, the 2% draw fee still $800, the annual fee $175 if this is the year’s first charge — roughly $1,375 in total cost for one month’s use of $40,000, of which interest is the minority. Nothing is mispriced; the fee stack is simply indifferent to how briefly you borrow. The practical conclusions: negotiate draw fees before annual fees if you draw often, negotiate the annual fee if you draw rarely, and never judge a line by APR alone — run the full stack, the way fee-bearing loan quotes need a true-APR check before they can be compared honestly. Current market rate ranges by lender type live in the average business loan rates snapshot.
How is interest calculated on a business line of credit? Lendio’s interest explainer gives the standard method: average daily balance. Each day’s outstanding balance is multiplied by the daily periodic rate (APR ÷ 365) and the days are summed over the billing cycle — its worked example is $10,000 at 12% APR accruing about $3.29 a day. Some lenders use a 360-day year, which raises the effective cost slightly.
What fees come with a business line of credit? Lendio’s fees guide structures the stack: a draw fee of roughly 1–3% per draw, an origination fee of 1–3% of the limit at some lenders, an annual or maintenance fee typically under $200, and — on larger lines — an unused-line fee of 0.25–1% of the undrawn portion (LegalClarity). Any of them can be zero at a given lender; the agreement, not the category, decides.
Do you pay interest on the unused part of a line of credit? No. Bank of America’s secured-line FAQ answers its own version of the question — whether you pay interest with a zero balance — with a flat no: interest accrues only on the balance you have actually drawn. (An unused-line fee is a different charge, and exists only where the agreement says so.)
Sources: Lendio interest explainer and fees guide; LegalClarity commercial line guide (unused-line fee example); CapitalXO fee ranges; PNC published line comparison table ($175 / 0.25% fee pair); worked example computed on the cluster’s calculator specification. Rate and fee figures are attributed snapshots checked 2026-10-23. Currency verified 2026-10-23.