What A Business Line Of Credit Actually Costs In New York

A line of credit is the facility most New York businesses reach for first, because it matches the shape of the problem: revenue arrives unevenly, payroll does not. You draw when you need it, repay when the money lands, and pay interest only on what is outstanding.

That is the theory. The reason owners are surprised by the cost is that the interest rate is only one of several charges, and it is usually the one the lender leads with.

The charges that sit alongside the rate

Most facilities carry an origination or arrangement fee charged when the line is opened, expressed as a percentage of the limit rather than of what you actually draw. A line you never use can therefore still cost money in year one.

Many also carry an unused-line fee, which is charged precisely because you did not borrow. From the bank's side this is rational — it has reserved capital against your limit. From the borrower's side it means an oversized limit is not free insurance.

Then there is the renewal. Lines are typically committed for a term and re-underwritten at the end of it, and a renewal can come with a fresh fee, a changed limit, or new conditions.

Covenants are part of the price

Beyond fees, a facility usually carries covenants: financial ratios you must stay inside, reporting you must file, and limits on further borrowing. Breaching one rarely means immediate demand for repayment, but it hands the lender the right to reprice or restrict the line at the moment you are least able to argue.

Read the covenant schedule before the rate sheet. A cheap line with tight covenants can cost far more than an expensive line with loose ones, because the expensive one is still there in a bad quarter.

Personal guarantees

For most small and mid-sized New York businesses the lender will want a personal guarantee from the owners. That converts a business facility into a personal liability, and it survives the business. Ask whether the guarantee is capped, whether it burns off as the balance reduces, and what releases it.

None of this makes a line of credit a bad instrument. It makes it a priced one. Ask the lender for the all-in cost of carrying the facility for a year at your realistic average draw, not the rate.