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Utilization rate
Also called utilisation, line utilization, credit utilization.
The share of an available credit limit currently drawn, watched by lenders on a line of credit as an indicator of both dependence and remaining cushion.
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
On a revolving facility it is the outstanding balance divided by the commitment. A line that sits permanently at or near its limit is functioning as a term loan the borrower never amortises, and lenders read that as a business whose working capital gap is structural rather than seasonal. A line that is never drawn invites a reduction at renewal, because unused commitments consume capital on the lender's side.
Some facilities require a clean-up period — the balance must reach zero, or a stated level, for a set number of consecutive days each year. It is a test of whether the borrower's cash cycle actually turns. Failing it is a covenant issue and a common reason a line is not renewed.
On business credit cards, utilisation feeds scoring models the same way it does on the consumer side, and where the card reports to the owner's personal file, a heavily drawn business card can depress a personal score that underwriting elsewhere is reading.
Unused line fees, charged on the undrawn portion, run in the opposite direction to the drawn-balance interest, so the all-in cost of a facility depends on utilisation in both directions.
Where this one catches people
Borrowers treat a line as headroom that will be there when they need it, and treat a full draw as simply using what they were approved for. Most facilities include provisions letting the lender reduce or terminate availability on a material adverse change or a covenant breach, and those are exercised precisely when the borrower is deteriorating. A line at 95 percent utilisation is not a cushion; it is a term loan with a cancellation clause.
Where you will meet this term
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Utilization rate — common questions
What does utilization rate mean?
The share of an available credit limit currently drawn, watched by lenders on a line of credit as an indicator of both dependence and remaining cushion.
Where does utilization rate catch people out?
Borrowers treat a line as headroom that will be there when they need it, and treat a full draw as simply using what they were approved for. Most facilities include provisions letting the lender reduce or terminate availability on a material adverse change or a covenant breach, and those are exercised precisely when the borrower is deteriorating. A line at 95 percent utilisation is not a cushion; it is a term loan with a cancellation clause.
Is utilization rate the same as an interest rate?
Utilization rate 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 utilization rate apply to?
Business Line of Credit, Asset-Based Lending.
Is there a worked example of utilization rate?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside utilization rate?
Borrowing base, Clean-Up Provision, Covenant, Draw, Line of credit.
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.