Since a line of credit is technically a loan, it comes with a loan term. This term depends on the lender, but can range anywhere from 3 months to 10 years. However, this is not to be confused with the loan’s life span. This type of loan runs on a revolving credit line, so once the drawn amount is paid off, the full loan amount becomes available to you once again. This is very different from a credit card where the outstanding balance can be paid off over a long period of time, if necessary. Therefore, it is extremely important that you factor in the loan’s term into the business line of credit calculator to figure out the best strategy to pay off the credit line.
If you are looking to take out a line of credit for your business you should really consider the amount you will need to initially draw from before acquiring this type of loan. Knowing how much money will be needed to cover the business’ expenses, plus estimating how much time you believe you will be able to pay that money back, will help you successfully replenish your credit line in a timely manner. Excessive borrowing against a line of credit and delaying payments can both lead to trouble, especially when it comes to repaying the borrowed amount.
Use the business line of credit calculator to input the amount of money you’d like to withdraw, an interest rate percentage, and how long you think it’ll take you to pay down the drawn amount. The result should give you the amount you would have to pay on a monthly basis in order to meet the loan’s term. Play around with the numbers to come up with a realistic monthly payment you would feel comfortable paying. Base this estimation primarily on interest rate and loan term since you control the amount you want to withdraw. Having an idea of the numbers it’ll take to get to a realistic monthly payment you feel comfortable paying will help you negotiate terms with a lending company.
Similar to traditional loans, a line of credit may come with fees that are added on to the total loan amount. Depending on the lender, they may add maintenance fees, draw fees, or both. Maintenance fees are typically added to sustain an account that may or may not be in use. Draw fees, on the other hand, are charges that could be applied if a borrower draws against the limit. These loan components limit the business line of credit calculator since each lender handles their fees differently. For example, one lending company may apply a $20 maintenance fee, but won’t apply draw fees. Another lending company, on the other hand, may calculate a percentage of the borrower’s draw amount and will apply that to the overall loan amount. All in all, it’s best to compare lenders before making the final decision to apply for a line of credit for your business.