Business Line of Credit Draws and Repayments: Follow the Money

Track three different balances

The commitment is the contractual facility size. Outstanding principal is the amount borrowed and not yet repaid. Available credit is what the lender currently permits you to draw after applying the agreement’s conditions. For a simple unrestricted revolving example, availability equals the limit minus principal, but collateral limits, reserves, pending transactions, and other terms can change that result.

Keep those figures separate from cash in your checking account. Drawing funds moves cash into the business while adding debt; it does not create revenue or profit. Sending a payment reduces bank cash, but the amount credited to principal may be smaller than the total sent. Reconcile both accounts to their statements.

Understand the draw and payment process

Ask which authorized people can request a draw, which account receives it, whether a request needs supporting records, and when an accepted request becomes usable cash. Do not promise a supplier immediate payment based only on clicking a request button. Verify the cutoff time, processing method, and any fees for the proposed facility.

For repayments, ask for the allocation order and the date a payment is treated as received. If a $3,000 payment includes $400 of interest and $100 of fees, only $2,500 reduces principal under that illustrative allocation. A forecast that assumes all $3,000 becomes available to borrow again overstates capacity by $500.

Chase’s published business-line FAQ illustrates the distinction between a draw period and a later repayment period. That is one lender’s structure. Other agreements may require separate installment payments for each draw or use different maturity provisions. Obtain the terms of the actual facility.

Build a simple draw-and-repayment ledger

Hypothetical example: assume an $80,000 revolving limit, no collateral restrictions or fees, and $25,000 initially outstanding. A $15,000 draw increases principal to $40,000. A later payment that reduces principal by $10,000 brings it to $30,000. Under these assumptions, availability moves from $55,000 to $40,000 and then to $50,000.

Now assume the three balances each remain outstanding for exactly ten days. At an invented 12% annual simple-interest rate with a 365-day basis, interest is approximately $312.33: the sum of $25,000, $40,000, and $30,000, multiplied by ten days and 12%, divided by 365. This is an arithmetic illustration, not a rate quote or the billing method of a specific lender.

Distinguish the required payment from the repayment plan

The minimum payment tells you what the agreement requires for a period. Your business repayment plan should also explain when principal will fall and why. Repeatedly paying only the contractual minimum can leave a material balance when availability ends, even if every payment is timely.

Ask whether the facility requires periodic principal reductions, a cleanup period, amortization, or repayment at maturity. Confirm whether renewal is discretionary and what happens if it is not offered. A line with a transition to scheduled repayment behaves differently from one whose remaining balance is due at a stated maturity.

Test the payment after the draw period ends, using a written schedule. If the business expects to repay from future customer collections, identify those receipts and the expenses that will compete for them. Do not count a future refinancing or renewal as completed funding.

Use controls that make the facility useful

Assign responsibility for draws, payments, statement reconciliation, and reporting dates. Give each draw a documented purpose and expected repayment source. Review the unused capacity and cash balance together before accepting a new order or committing to a purchase.

Prepare a monthly reconciliation of beginning principal, new advances, principal payments, and ending principal. Investigate differences instead of adjusting your internal balance to match without an explanation. Keep interest and fees in separate expense or accounting categories with professional guidance as needed.

For a capital review, tell The Mortgage Calculator team how frequently you expect to draw and how collections will repay the balance. This helps identify the financing need without assuming that a particular revolving structure is available.