What a credit line costs,
and when it costs nothing
A business credit line usually costs nothing while it sits unused. You pay when you draw. On the facility we place most often that is a flat fee on each payment, from 1.99% if you clear it in a month to 15.99% if you spread it over twelve, with no interest and no setup or annual fee. Other facilities charge interest on the drawn balance instead. Either way, how long you keep the money decides the bill far more than the headline figure does.
No credit check to enquire.
What you pay for, and what you do not
- Having the limit: often nothing
On the facility we place most, an unused limit is free: no arrangement fee and no annual charge. That is not universal. Some facilities charge to set up, and some charge a small fee on the part you leave undrawn, so ask before you assume a limit is free to hold.
- Drawing on it: a fee set by the repayment term
Choose how long to spread each payment, and the fee follows: 1.99% over one month, 3.99% over three, 7.99% over six, 11.99% over nine and 15.99% over twelve. These are the lowest published fees; the lender sets yours on its own assessment.
- Or interest on what you have drawn
Other credit lines on our panel work like a flexible loan and charge interest each month on the balance outstanding, quoted at about 1.9% to 5.7% a month depending on the business. Pay it down and the interest stops on the part you have repaid.
- The charges you only meet if something goes wrong
Late payment fees and default interest if an instalment is missed, and the effect on your credit file. Ask for these in writing at the start; they are rarely in the headline.
A year of the same need, priced two ways
A business that needs £15,000 to cover supplier bills three times a year, each time for about a quarter, against one that draws it once and spreads it over the full year. Lowest published fees, no lender named.
Illustrative, at the lowest fees published for the facility we place most often. The first business drew three times as much over the year and still paid about £600 less, because each pound was out for three months rather than twelve.
Why a yearly rate misleads in both directions
Put a twelve-month drawdown into annual terms and the 15.99% fee looks like 16% a year. It is more than that, because you repay in instalments and hold roughly half the money on average, so as a cost of borrowing over time it is closer to 32% a year. That is the number to hold up against a loan if you genuinely need the money for twelve months.
Turn a one-month drawdown into a yearly rate and you get the opposite distortion: a 1.99% fee becomes something like 27% a year, which assumes you would draw and repay twelve times running. Nobody uses a facility that way. For a single short gap, the honest comparison is the fee in pounds against what the gap would otherwise cost you: a missed early-payment discount, a supplier on stop, or a late payment penalty.
So the rule is simple. A credit line is cheap money for short, repeated gaps and dear money for a long, fixed need. If you know you need £15,000 for a year, a term loan is likely to cost less. What a loan costs sets out that side.
Questions to ask before you sign
Is there any charge for the limit itself, at setup, annually or on the undrawn part? What is the smallest payment I can make from it, and is there a fee per transfer? If I settle a drawdown early, are the remaining fees waived or do I pay them anyway? Can the limit be reduced or withdrawn, and with how much notice? And what exactly happens, in pounds, if an instalment is missed?
On the facility we place most often, early settlement waives the remaining instalment fees and card spending cleared inside a month carries no fee. Those terms are what make it cheap when used well, and they are worth confirming for any facility you are offered. How a credit line works.
Tell us what you would draw and how often, and we will price it as a facility and as a loan.
Get my optionsCommon questions
Is a credit line cheaper than a business loan?
For short, repeated needs, usually yes, because you pay only for the weeks the money is out. For one fixed sum needed for a year or more, usually no: a term loan’s annual rate tends to beat a twelve-month drawdown fee once instalments are taken into account.
Do I pay anything on the part of the limit I do not use?
Not on the facility we place most often. Some facilities elsewhere charge a non-utilisation fee, a small percentage of the undrawn limit, to cover the lender keeping the money ready. If a facility has one, a large unused limit is not free, so size it to what you will use.
Does settling a drawdown early save money?
On a fee-per-drawdown facility it depends entirely on the terms. On ours, settling early waives the instalment fees still to come. On others the fee is fixed when you draw and early repayment only frees the limit. On an interest-based line, repaying early always saves the interest you would have paid.
What happens if I miss an instalment on a credit line?
Expect a late fee or default interest, a mark on the company’s credit file and possibly the director’s if there is a guarantee, and the limit may be frozen until it is brought up to date. Call the lender before the date rather than after it; most would rather agree a plan.
Can the fee on a credit line change after I sign up?
On a fee-per-drawdown facility, the fee for a payment is fixed when you choose its term. On an interest-based line, the terms say whether the rate can move. Either way, the fees for future drawdowns, and the size of the limit, can be reviewed by the lender as your trading changes, up as well as down.
Price the facility on your numbers
One enquiry tells you the limit you would get and what a drawdown would cost you.
Get my options