How is a utilisation fee calculated?

For each day, the agent or lender divides the drawings by the total commitments to find the band, applies that band's annual rate to the drawings, and divides by the day-count basis the agreement uses, 365 or 360 days. The daily amounts are added up over the fee period, usually a quarter, and charged in arrears. Because it is worked day by day, a short peak costs only for the days it lasts, and a fee worked on average drawings would give a different answer.

Is a utilisation fee charged on the whole amount drawn or only on the excess?

It depends on the clause. Many agreements apply the band rate to all drawings once utilisation passes the boundary, so crossing from one band to the next raises the cost of every dollar already drawn. Others charge only on the part above the boundary, which avoids that step. The wording of the fee clause, read with the definition of utilisation, decides which, and a borrower forecasting drawings near a boundary should check it before signing.

Why do lenders charge a utilisation fee?

Because a revolver priced to be partly drawn earns too little if it is drawn heavily. A drawn dollar uses more of the lender's funding and capital than an undrawn one, and a facility that stays near its limit can signal a business short of cash. The fee raises the return as the facility fills and encourages the borrower to repay the revolver between peaks rather than treat it as permanent borrowing.

Do letters of credit count towards utilisation?

In some syndicated revolvers they do. Where the facility can be used to issue letters of credit or bank guarantees, the definition the fee is measured on may include their outstanding amount alongside cash loans, so a business that issues heavily under the line can reach a higher band without drawing more cash. Other agreements measure the fee on cash loans alone, and some count swingline or ancillary amounts as well. The definition in the agreement is the only reliable answer for a given facility.

// WORKED EXAMPLETHE ARITHMETIC A DECISION RESTS ON

Utilisation Fee: a Worked Example

The fuller the revolver runs, the more each dollar drawn costs.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-07

// THE SHORT ANSWER

A utilisation fee is what a revolving credit facility charges for being used more heavily than its pricing assumed. The lenders priced the facility as a reserve: a margin on whatever is drawn and a commitment fee on the rest. When drawings climb past bands written into the agreement, an extra rate is added to the drawn balance, and in common drafting the rate for the band reached applies to all of it. For a borrower the fee is a signal as much as a cost. A revolver that sits in the top band for most of the year is doing a term loan's work at a revolver's price.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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// 01 — WHY A LENDER CHARGES FOR A FULL REVOLVER

A revolver is a promise to lend on demand, up to a limit, for the life of the facility. The lender has to be ready to fund the whole commitment, but it earns a margin only on the part that is drawn. When the pricing was agreed, both sides expected the facility to be drawn for part of the year and repaid from trading cash for the rest, and the commitment fee was set on that expectation.

A facility that stays close to its limit is a different loan. It uses more of the lender's funding and, under bank capital rules, an undrawn commitment usually counts for only part of its amount while a drawn loan counts in full, so a dollar drawn uses more of the lender's capital than a dollar promised (see credit conversion factor). Heavy use can also be the first sign that the business is short of cash. The utilisation fee prices both: it lifts the return as the facility fills, and it gives the borrower a reason to keep the revolver for swings rather than for permanent debt.

// 02 — HOW THE BANDS ARE WRITTEN AND CALCULATED

Utilisation = drawings on the day ÷ total commitments

Band rate = the rate for the band that utilisation falls in

Fee for the day = drawings on the day × band rate ÷ 365 or 360, as the agreement says

Fee for the period = the daily amounts added up, paid in arrears

Four drafting points decide the bill. The first is what counts as drawn: cash loans, and in some agreements letters of credit and bank guarantees issued under the facility, and sometimes swingline and ancillary amounts; other agreements count the loans alone. The second is where each boundary sits. Some clauses put exactly one-third in the lower band, others in the higher one, so the wording "exceeds" or "is equal to or greater than" matters. The third is whether the band rate applies to all drawings or only to the part above the boundary. In published examples of the clause the band rate usually applies to all drawings, which creates a step in cost at each boundary. The fourth is timing: the fee is usually worked out day by day and paid quarterly in arrears, so a peak of a few weeks costs only for those weeks.

The fee is a feature mainly of syndicated and club revolvers written on loan-market forms. Many bilateral facilities for mid-market borrowers in New Zealand and Australia are priced differently, often with a line fee on the whole limit, and carry no utilisation fee at all.

// 03 — THE EXAMPLE

A pharmacy wholesaler, constructed for this page like every figure in it, has a US$60m revolver from a club of three banks. The agreement charges no utilisation fee up to one-third drawn, 0.15% a year on all drawings above one-third and 0.30% above two-thirds, with exactly two-thirds in the lower band. The rates belong to the example, not to the market. Drawings follow the winter buying season, and for simplicity each quarter's balance is held flat and each quarter counts as a quarter of a year:

Quarter Drawn US$m Utilisation Band rate Fee for quarter US$

Q1 15 25% — 0

Q2 30 50% 0.15% 11,250

Q3 48 80% 0.30% 36,000

Q4 27 45% 0.15% 10,125

Year 57,375

Average drawings over the year were US$30m, which sits in the middle band. A fee charged on the average would have been 0.15% of US$30m, or US$45,000. The daily calculation charges US$12,375 more, because it follows the third quarter into the top band. The step at the boundary is sharper still:

Drawn 40 (exactly two-thirds): 40 × 0.15% = 60,000 a year

Drawn 41 (68%): 41 × 0.30% = 123,000 a year

Cost of the 41st million in fee alone: 63,000 a year

The extra US$1m of drawings moved every dollar drawn into the top band. A treasurer who knows the boundary times supplier payments, or uses a separate overdraft for the last few days of a peak, so as not to cross it.

// 04 — HOW IT READS BESIDE THE COMMITMENT FEE

The two fees move in opposite directions as drawings rise, and reading them together is how a borrower works out what one more dollar drawn costs. Take the wholesaler's facility with a margin of 2.00% and a commitment fee of 0.70% on the undrawn part, both again the example's figures. Drawing an extra US$1m in the middle band adds the margin, adds the utilisation fee and saves the commitment fee:

Middle band: 2.00% + 0.15% − 0.70% = 1.45% over the base rate

Top band: 2.00% + 0.30% − 0.70% = 1.60% over the base rate

Crossing two-thirds: the 1.60%, plus 0.15% more on every dollar already drawn

The commitment fee is what a borrower pays to have the money available; the utilisation fee is what it pays for actually needing most of it. A facility can be cheap to hold and expensive to use, and the all-in rate a borrower quotes to its board should be worked at the level of drawings it expects, not at zero.

DEFINED IN ONE PARAGRAPH → · THE REVOLVING CREDIT FACILITY → · PRICING AND FEES →

// 05 — WHERE IT DECIDES A FILE

In the term sheet, a borrower that forecasts heavy use argues the bands, the rates or the definition of what counts as drawn. The lender's question runs the other way: why will the revolver be full? If the answer is a season, the fee is the price of the peak. If the answer is that the drawings do not come down, part of the revolver is permanent debt, and the conversation moves to terming it out, as a term loan beside a smaller line, on a repayment schedule the cash flow can meet.

After signing, the utilisation fee line in the quarterly fee notices is a cheap early reading. A wholesaler whose fee climbs quarter after quarter, without a matching rise in sales, is drawing to fund something the facility was not sized for, and the liquidity headroom left in the line is shrinking before any covenant says so.

TEMPORARY OR PERMANENT WORKING CAPITAL → · UTILISATION, DEFINED → · HOW BANKS PRICE BUSINESS LOANS →

// QUESTIONS PEOPLE ASK

How is a utilisation fee calculated?: For each day, the agent or lender divides the drawings by the total commitments to find the band, applies that band's annual rate to the drawings, and divides by the day-count basis the agreement uses, 365 or 360 days. The daily amounts are added up over the fee period, usually a quarter, and charged in arrears. Because it is worked day by day, a short peak costs only for the days it lasts, and a fee worked on average drawings would give a different answer.
Is a utilisation fee charged on the whole amount drawn or only on the excess?: It depends on the clause. Many agreements apply the band rate to all drawings once utilisation passes the boundary, so crossing from one band to the next raises the cost of every dollar already drawn. Others charge only on the part above the boundary, which avoids that step. The wording of the fee clause, read with the definition of utilisation, decides which, and a borrower forecasting drawings near a boundary should check it before signing.
Why do lenders charge a utilisation fee?: Because a revolver priced to be partly drawn earns too little if it is drawn heavily. A drawn dollar uses more of the lender's funding and capital than an undrawn one, and a facility that stays near its limit can signal a business short of cash. The fee raises the return as the facility fills and encourages the borrower to repay the revolver between peaks rather than treat it as permanent borrowing.
Do letters of credit count towards utilisation?: In some syndicated revolvers they do. Where the facility can be used to issue letters of credit or bank guarantees, the definition the fee is measured on may include their outstanding amount alongside cash loans, so a business that issues heavily under the line can reach a higher band without drawing more cash. Other agreements measure the fee on cash loans alone, and some count swingline or ancillary amounts as well. The definition in the agreement is the only reliable answer for a given facility.

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THE GLOSSARYIN ONE PARAGRAPHUtilisation fee What is a utilisation fee on a revolving credit facility?