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Draw fee
Also called advance fee, draw charge, per-draw transaction fee.
A charge applied every time money comes off a line of credit, usually a percentage of the amount drawn, sitting on top of any interest charged on the balance.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
A percentage draw fee is a fixed cost incurred at the moment of borrowing, and a fixed cost has no time dimension. That is the whole reason it deserves separate attention: 2 percent on money held for a year is a modest add-on, and 2 percent on money held for three weeks is a completely different product.
Shapes it takes
- A percentage of each draw, deducted from the amount advanced or added to the balance
- A flat dollar charge per draw, which punishes small draws hardest
- Both, with the flat fee acting as a minimum
- A monthly or annual maintenance fee layered on top, charged whether you draw or not
Where you find it
Short-term business lines from non-bank lenders, most fintech revolvers, and some equipment lines. Bank lines more commonly use an unused-line or commitment fee and no draw fee. Some products manage to charge both, which is worth checking for by name rather than assuming.
What to ask
Whether re-draws within the same billing period are each charged. Whether there is a minimum draw amount, which converts a percentage fee into a floor. Whether repaying and re-drawing the same money triggers the fee twice. And whether the fee is refunded or prorated on early repayment, which it almost never is.
Where this one catches people
A per-draw fee punishes exactly the behaviour a revolving line is supposed to make cheap: borrowing small amounts, briefly, often. Businesses use the line the way it was described to them — bridging payroll, covering a supplier deposit, smoothing a slow week — and pay the fee twenty times a year without ever holding a large balance.
Model your actual usage pattern before accepting the structure. If you intend to draw and repay weekly, a 2 percent draw fee is roughly 2 percent a week on the money you are using, and no one will annualise that for you. Compare it deliberately against a line that charges a commitment fee and a higher interest rate: those two structures punish opposite behaviour, and the cheaper one depends entirely on how you borrow, not on which headline number is smaller.
Worked through
Illustrative. A 100,000 line charges a 2 percent draw fee plus 1.5 percent a month on the outstanding balance.
You draw 25,000 and repay it after 20 days. Draw fee: 500. Interest: 25,000 × 1.5% × 20 ÷ 30 = 250. Total cost 750 for 20 days' use of 25,000.
Expressed as a rate: 750 ÷ 25,000 = 3.0 percent for 20 days. Annualised, 3.0% × 365 ÷ 20 = about 54.8 percent a year.
Do the same thing twelve times across a year and you pay 6,000 in draw fees and 3,000 in interest — 9,000 on a facility whose price was quoted as 1.5 percent a month. Two thirds of what you paid was the fee, not the rate.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
Read next
Draw fee — common questions
What does draw fee mean?
A charge applied every time money comes off a line of credit, usually a percentage of the amount drawn, sitting on top of any interest charged on the balance.
Where does draw fee catch people out?
A per-draw fee punishes exactly the behaviour a revolving line is supposed to make cheap: borrowing small amounts, briefly, often. Businesses use the line the way it was described to them — bridging payroll, covering a supplier deposit, smoothing a slow week — and pay the fee twenty times a year without ever holding a large balance.
Is draw fee the same as an interest rate?
Draw fee is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does draw fee apply to?
Working Capital, Business Line of Credit, Equipment Financing, Business Credit Cards.
Is there a worked example of draw fee?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside draw fee?
Annual percentage rate, Business line of credit, Commitment fee, Draw, Draw period.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.