Before securing any business line of credit, use a small business line of credit payment calculator to understand what your business will be expected to pay.
Before making any decision, be aware of the following cost factors.
When you come to terms on a loan product, you’re given your funds all at once, along with an accompanying repayment schedule.
A business line of credit, on the other hand, only requires payment once you’ve withdrawn from your credit line. As you find with a term loan, a business line of credit will provide repayment parameters once a withdrawal is made.
Depending on the lender you’re working with, your repayment period can extend from 12 months to 10 years, though a term of 24 months is common. That said, terms are subject to your unique qualifications as well as your lender’s policies and preferences.
As noted, interest is only applied to the funds you withdraw, not the total line of credit. This is where using a business line of credit loan calculator can be helpful.
Aside from your own qualifications, where you secure your business line of credit will also impact your interest rate. Lines of credit from banks historically carry the lowest rates, while alternative lenders typically have less competitive rates due to the increased risk they face.
It’s important to remember that even though a bank rate may be lower at face value, the total interest over the course of the line of credit through an alternative lender could be lower. This is due to the fact that alternative lenders use a condensed term (12-24 months) when compared with conventional lenders.
Fees Excluded From a Business Line of Credit Interest Rate Calculator
The most common fees attached to a business line of credit are application fees, origination fees and draw fees.
While application and origination fees are one-time costs, draw fees are common when you borrow money from your credit line. Some lenders may charge 1%-3% of the amount you borrow.
In contrast, if you don’t borrow any money from your line of credit, some lenders may charge a small monthly maintenance fee for non-use, which could be $20, for example.
You could also be charged a fee for missed or late payments.
Because such fees aren’t folded into your interest rates, it’s important to include them when determining your overall costs. By adding your estimated fees, you’ll come away with a much clearer picture of how much your business will pay.
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