What is a Standby Fee?
A standby fee is a charge a lender imposes on a borrower to compensate for keeping a committed credit facility available — even when the borrower has not yet drawn on those funds. According to the Federal Reserve’s 2023 Small Business Credit Survey, unused credit lines are among the most common financing arrangements held by small businesses, making standby fees a cost that many owners encounter but rarely anticipate.
How a Standby Fee Works in Business Lending
When a lender approves a revolving credit line or a delayed-draw term loan, it must reserve capital against that commitment under federal banking regulations — capital that cannot be deployed elsewhere. To offset that opportunity cost, lenders charge a standby fee, sometimes called a commitment fee, on the unused portion of the facility. Typical standby fees range from 0.25% to 1.50% per annum on the undrawn balance, calculated daily or monthly and billed quarterly. For example, if a business secures a USD 500,000 line of credit and only draws USD 200,000, the standby fee applies to the remaining USD 300,000. FDIC data shows that community banks most frequently apply standby fees to commercial lines above USD 100,000, though the structure varies by institution and loan size.
The fee structure differs meaningfully across loan types. SBA 7(a) lines of credit may include an annual commitment fee governed by SBA guidelines, which cap various lender charges to protect borrowers. Traditional bank term loans with delayed-draw features — common in construction and equipment financing — often carry standby fees between 0.50% and 1.00% on undrawn tranches. Online lenders and alternative financing platforms, by contrast, tend to charge higher draw fees at the moment of access rather than recurring standby fees, which can make cost comparisons tricky. Community Development Financial Institutions (CDFIs) sometimes waive standby fees entirely for qualifying underserved borrowers, prioritizing accessibility over fee revenue.
What Business Owners Should Do About a Standby Fee
Before signing any credit agreement, request a full fee schedule and ask the lender to clarify exactly how the standby fee is calculated — daily balance, average balance, or peak balance. Negotiate the rate whenever possible; lenders with strong appetite for your industry may reduce standby fees from 1.00% to 0.25% for well-qualified borrowers. Review your projected draw schedule carefully: if you anticipate using the full credit line within 60 days, a standby fee adds minimal cost, but if the facility will sit largely undrawn for 12 months, that fee compounds into a meaningful expense. Prepare your financial documents — two years of business tax returns, a current profit-and-loss statement, and a cash flow forecast — so you can demonstrate disciplined capital management and negotiate from a position of strength. Timing also matters: applying during a lender’s fiscal quarter-end can sometimes yield more favorable fee concessions.
Understanding how standby fees fit into your total borrowing cost is exactly where expert guidance pays off. We connect you with lenders — we do not lend — which means our sole focus is matching your specific credit profile, draw schedule, and industry to lenders whose standby fee structures work in your favor. Whether you qualify for an SBA line, a community bank facility, or a CDFI program, we help you compare the true all-in cost before you commit.
What standby fee do lenders require for a business loan?
SBA-approved lenders must follow SBA guidelines that limit ancillary fees, and standby or commitment fees on SBA lines of credit are typically capped or disclosed as part of the loan agreement review process. Conventional bank lines of credit generally carry standby fees between 0.25% and 1.00% annually on undrawn balances, while some online lenders replace recurring standby fees with a one-time origination or draw fee instead. The specific rate depends on your creditworthiness, loan size, and the lender’s internal pricing model.
How does a standby fee affect my interest rate?
A standby fee does not change your stated interest rate, but it does increase your effective annual cost of borrowing when factored into the total expense of the credit facility. Per the Federal Reserve’s 2023 Small Business Credit Survey, small business owners frequently underestimate non-interest fees, which can add 0.50% to 1.50% to the effective APR on a partially drawn line. Reducing your standby fee from 1.00% to 0.25% on a USD 250,000 undrawn balance saves USD 1,875 annually — a meaningful difference for a cash-constrained business.
Can I get a business loan with poor standby fee terms?
Yes — if a lender’s standby fee terms are unfavorable, alternatives exist, including drawing down funds immediately to eliminate the undrawn balance subject to the fee, or pursuing a fixed-term loan rather than a revolving line so no standby fee applies. CDFIs and credit unions often offer more borrower-friendly fee structures for small businesses that do not qualify for prime bank pricing. SBA Express lines and microloans through nonprofit intermediaries may also carry reduced or no standby fees for eligible borrowers.
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Sources: SBA.gov, Federal Reserve 2023 Small Business Credit Survey, CFPB, FDIC. Small Business Loans Today is an independent affiliate publisher — not a lender or broker.
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