This worksheet from Aspenspring Business Loans in Durango, Colorado shows how to work out interest on a business line of credit by the day: the daily rate formula, a table of balances and days, the average daily balance method that statements use, the monthly shortcut and its limits, and how fees change the picture. Every figure is invented arithmetic; it is not a calculator widget or an offer.
Line of Credit Interest Calculator, Daily: The Formula
Daily interest = balance x (annual rate / 365) x days. At an invented 12% annual rate, the daily rate is 12 / 365 = 0.03288% a day (our arithmetic). Some agreements divide by 360 instead of 365, which raises the daily rate slightly; the agreement states which.
| Balance drawn | Days carried | Interest at an invented 12% |
|---|---|---|
| $10,000 | 30 | $98.63 |
| $25,000 | 30 | $246.58 |
| $50,000 | 30 | $493.15 |
| $25,000 | 10 | $82.19 |
Average Daily Balance Interest Calculator, Explained
Some statements charge interest on the average daily balance for the billing period: add up the balance at the end of each day, divide by the number of days, then apply the rate for the period. The result matches adding up each day's interest separately.
| Days | Count | Balance | Interest |
|---|---|---|---|
| 1 to 6 | 6 | $0 | $0.00 |
| 7 to 18 | 12 | $18,000 | $71.01 |
| 19 to 25 | 7 | $30,000 | $69.04 |
| 26 to 30 | 5 | $12,000 | $19.73 |
| Total | 30 | average $16,200.00 | $159.78 |
Here the owner draws $18,000 on day 7, draws another $12,000 on day 19 and pays $18,000 back on day 26. The average daily balance is $16,200.00 and interest for the period is $159.78 (our arithmetic).
Line of Credit Interest Calculator, Monthly: A Shortcut and Its Limits
A quick monthly estimate is average balance x annual rate / 12. For the period above that gives $162.00, close to the daily total of $159.78 (our arithmetic), because 30 days is close to one-twelfth of a year. Over a 31-day month, or with a 360-day basis, the gap widens, so use the daily method to check a statement to the cent.
Worked Rows for a Contractor, a Lodge and a Clinic
Illustration only, invented figures, all at 12%. An invented contractor draws $40,000 for 21 days while a draw is approved: $276.16. An invented lodge draws $25,000 for 45 days to cover a room refresh before revenue returns: $369.86. A clinic carries $15,000 for 35 days while insurers pay: $172.60 (our arithmetic).
Each figure is interest only. Contractors, lodges and clinics each have pages on their own timing.
How the Result Reads Next to Fees and Other Offers
- Annual fee: spread it over the year and add it to the interest.
- Draw fee: add it to each draw's cost; small frequent draws carry it more often.
- Unused-limit fee: a charge on the part of the limit not drawn.
- Minimum interest: some agreements charge a floor amount each period.
- Variable rate: if tied to an index, the daily rate changes when the index does.
Set the total of interest and fees for a realistic year of draws against the cost of a working capital loan or a term loan for the same need. The line of credit page explains how lines work, and the reviewing partner sets the actual rate and fees.
Checking a Statement Line by Line
- List each day the balance changed and the new balance.
- Count the days at each balance.
- Multiply balance x daily rate x days for each stretch.
- Add the stretches and compare with the statement's interest charge.
- Ask the funder about any difference: day count basis, fees or a rate change.
A spreadsheet with one row per stretch does this in a few minutes, and keeping it for each statement shows the true cost of the line over a year.
Interest-Only Months and Paying Down Principal on a Draw
Some lines ask only for the interest each month, leaving the principal to be paid when the business can; others set a payment that clears each draw over a fixed number of months. Illustration only, invented figures: a $30,000 draw at an invented 12% costs about $300.00 a month in interest alone (our arithmetic, monthly shortcut). Carried for six months on interest-only payments, the invented draw costs about $1,800.00 of interest with the full $30,000 still owed (our arithmetic).
Paying $10,000 of principal at the end of each of the first three months instead cuts the balance to $20,000, then $10,000, then zero, and the interest falls with it: about $300.00, $200.00 and $100.00, or $600.00 in total (our arithmetic). The difference is the cost of leaving a draw outstanding, and it is the reason a line suits gaps that close when clients pay.
Check the agreement for which payment method applies, whether it changes after a set period, and whether the full balance comes due at the annual review. A line whose balance never falls is a sign the need belongs on a term loan instead.
By Aspenspring Business Loans · Updated