This Robinline Capital Group worksheet for Lawrence, Kansas owners shows how to calculate interest-only payments on a business line of credit by hand: the monthly and daily methods, partial-month draws, a year of interest-only payments and the payment once the line converts to a repayment schedule. All figures are invented; a partner's agreement sets the real terms.
Interest Only Line of Credit Calculator in Lawrence, KS: The Two Formulas
- Monthly method: drawn balance multiplied by the annual rate, divided by 12.
- Daily method: drawn balance multiplied by the annual rate, divided by 365 (or 360, if the agreement says so), multiplied by the days the balance was out.
- Several balances in one month: figure each balance for the days it was out, then add them.
The agreement states which method and day count the line uses. The daily method is common on lines because balances change as the business draws and pays down.
Interest Only Line of Credit Loan Calculator: A Monthly Example
Illustration only, invented figures: a business has $25,000 drawn on a line at an assumed 11% annual rate. By the monthly method, interest for the month is $25,000 times 0.11, divided by 12, or about $229.17. If the minimum payment is interest only, that is the payment, and the balance stays at $25,000.
In the same invented example, by the daily method with a 365-day year, a 30-day month comes to about $226.03 and a 31-day month to about $233.56.
Business Line of Credit Interest Only Payment Calculator: Draws Partway Through a Month
Illustration only, invented figures: a business has $10,000 drawn for all 30 days of a month and draws another $15,000 for the last 12 days. At an assumed 11% annual rate by the daily method, the first balance costs about $90.41 and the second about $54.25, for a month's interest of about $144.66 by our arithmetic. Drawing late in the month, or paying down early, lowers the interest because the balance is out for fewer days.
A Year of Interest-Only Payments: What It Costs and What It Leaves
Illustration only, invented figures: if the $25,000 stays drawn for a full year at an assumed 11% annual rate, twelve interest-only payments of about $229.17 add up to about $2,750.00, and the balance is still $25,000 at the end. Interest-only payments keep the monthly cost low, but they do not reduce what is owed. A line used well is paid down when money comes in, not carried at the same balance for a year.
Line of Credit Interest Calculator in Lawrence, KS: When the Draw Period Ends
Some lines have a draw period followed by a repayment period in which no new draws are allowed and the balance is paid off in fixed payments of principal and interest. Illustration only, invented figures: if the $25,000 balance converts to a 36-month repayment schedule at an assumed 11% annual rate, the payment rises from about $229.17 to about $818.47 a month, and the 36 payments total about $29,464.85.
That jump in payment is the main thing to plan for. Check the agreement for when the draw period ends, whether it can be renewed, and what the repayment terms are.
How to Run This Worksheet With Your Own Numbers
- Write down each draw, its date and amount, and each paydown.
- Note the annual rate and the day-count basis from the agreement.
- For each stretch of days at a constant balance, multiply balance by rate, divide by the day basis and multiply by the days.
- Add the stretches for the month's interest.
- Add any fees the agreement lists, such as an annual or unused-line fee, to see the full cost.
The business line of credit page explains limits, draws and renewals, and the article on whether a business line of credit is good weighs a line against other funding types.
Comparing Two Credit Line Offers With This Worksheet
Illustration only, invented figures: Line A charges an assumed 10% annual rate with a $500 annual fee; Line B charges an assumed 11.5% with no fee. If the business expects to carry an average of $10,000 drawn over the year, Line A costs about $1,500 and Line B about $1,150 by our arithmetic. At an average of $40,000 drawn, Line A costs about $4,500 and Line B about $4,600. The lower-cost line in dollars depends on how much the business actually uses, which is why the expected average balance belongs in the comparison.
Run the same arithmetic on real offers, with the fees each agreement lists.
What This Worksheet Leaves Out
- Variable rates: if the rate is tied to an index, it can change during the draw period.
- Fees: annual, draw and unused-line fees add to the cost.
- Minimum payments larger than interest-only, which some lines require.
- Compounding or late-payment terms in a specific agreement.
The arithmetic here is a check on an offer, not an offer. The funding partner's agreement governs the real payment. The Kansas lender types guide covers who offers lines.
By Robinline Capital Group · Updated