The two phases in plain terms
During the draw period you borrow as needed. During the repayment period you stop borrowing and repay principal and interest on a schedule.
Some credit products, especially certain lines of credit and home equity products, work in two stages. Others are revolving without a fixed end, with a renewal each year. Your agreement tells you which kind you have.
- Draw period: access to funds, flexible borrowing, often minimum or interest-only payments.
- Repayment period: no new draws, fixed payments that retire the balance.
What happens to payments
Payments commonly rise when the repayment period begins, because you start paying principal as well as interest.
Illustrative example: you owe $60,000 at a 12 percent annual rate. In the draw period, an interest-only payment would be about $600 a month. If repayment then runs over 36 months, the monthly payment becomes roughly $2,000, more than three times higher.
That jump surprises many borrowers. Plan for it before the draw period ends. For how interest is calculated, read how interest works on a line of credit.
Ask whether the interest rate is fixed or variable. With a variable rate, the payment can change even within a phase, and the jump at the start of repayment may be larger than your first estimate.
A side-by-side view
The phases differ in borrowing access, payment size and risk. Know which one you are in at all times.
| Feature | Draw period | Repayment period |
|---|---|---|
| Can you borrow? | Yes, up to the limit | No |
| Typical payment | Interest or small minimum | Principal plus interest |
| Payment size | Varies with balance | Higher, often fixed |
| Main risk | Overborrowing | Payment shock |
How to prepare for the switch
Check the end date, pay down principal during the draw period, and ask the lender what your repayment will be before it starts.
- Find the draw period end date in your agreement.
- Ask for a repayment schedule at least 90 days ahead.
- Pay more than the minimum when cash allows.
- Plan the budget for the higher payment.
- Ask if the line can be renewed or extended.
See line of credit renewal and how to manage a line of credit.
One more habit helps: treat the draw period as practice for the repayment period. If you can afford to pay down principal along with interest now, the later shift will not hurt. If you cannot, borrow less during the draw period, or ask your lender about an option to extend before the end date arrives.
Revolving lines work a little differently
Many business lines are revolving: as you repay, the credit becomes available again, and the lender reviews the line each year or so.
A revolving line has no separate repayment phase until it is closed or not renewed. You draw, repay and draw again. Lenders may review it periodically and can reduce or end it. Read revolving line of credit to see the difference.
Also check for fees tied to draws, renewals or inactivity. See business line of credit fees.
Where ROI Funder fits
ROI Funder places business lines of credit that you draw, repay and redraw, with approvals in 24 to 72 hours.
A line works best for uneven costs: inventory buys, seasonal payroll or short gaps between invoices and payments. You pay for what you use, and we show true cost, payback and monthly-equivalent payments before you sign.
ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue. The application takes minutes, uses a soft credit pull and carries no obligation. Learn more about a business line of credit.
Frequently asked questions
What is a draw period?
It is the time during which you can borrow from a credit line, often paying only interest on what you use.
What happens when the draw period ends?
You can no longer borrow, and you start repaying principal plus interest, so payments often rise.
Can the draw period be extended?
Sometimes, by renewal or a new application. Ask your lender about options well before the end date.
Do all business lines of credit have a repayment period?
No. Many are revolving and reviewed periodically. Check your agreement for how yours works.