Delayed draw term loans
Some projects need money in pieces. A delayed draw term loan commits a total up front and lets you draw it over time. Here is how the cost works and who it actually fits.
✓ Checking what you qualify for does not affect your credit score.
Updated October 13, 2026 · Merchant Fund Express
A delayed draw term loan sets a total commitment, say $300,000, and lets you take the money in several draws during a set availability window. Each draw then repays on a term schedule. You pay interest only on what you have drawn, though many agreements add a commitment or unused fee on the part you have not taken. It is common in acquisitions, expansions and build-outs, and it is mostly a bank and private-credit product for larger, established borrowers.
| Delayed draw term loan | Line of credit | |
|---|---|---|
| Repaid money | Cannot be drawn again | Can be drawn again |
| Draw window | Fixed period, then the commitment ends | Open for the life of the line |
| Repayment | Each draw amortizes on a schedule | Often interest-only or a percentage of the balance |
| Typical use | Planned, staged spending | Recurring, unpredictable needs |
| Unused amount | Often carries an unused fee | May carry a small fee or none |
A restaurant group opens a second location. It takes a $300,000 delayed draw commitment with a 9-month draw window, interest at an illustrative 10% a year, and a 0.5% annual fee on the undrawn amount.
| Date | Use | Draw | Drawn total | Undrawn |
|---|---|---|---|---|
| March 1 | Lease and deposits | $80,000 | $80,000 | $220,000 |
| May 15 | Kitchen build-out | $140,000 | $220,000 | $80,000 |
| August 1 | Opening inventory and staff | $50,000 | $270,000 | $30,000 |
| November 30 | Window closes | None | $270,000 | $30,000 cancelled |
Interest runs only on the drawn balance. The unused fee on $220,000 from March to mid-May costs roughly $230, a small price for having the build-out money committed in advance. The $30,000 never drawn simply expires.
All figures in worked examples are illustrations of the arithmetic, not offers or quotes. Real terms depend on your file and the funder.
We do not offer a delayed draw structure as such, but the need behind it, staged money for a planned project, comes up often. Two options cover most of it. A business line of credit lets you draw as costs arrive and draw again after you repay; Tier 1 files with three years in business and a 650 FICO can see lines priced from 1% per month (see requirements). For a single dated cost, a term loan or a revenue-based amount sized to the first stage keeps the payment smaller until the project earns.
If you already have a delayed draw loan from a bank, list the commitment and the drawn balance on your application. A reviewer reads the drawn payments, and the bank agreement may restrict new debt, covered in debt covenants explained.
Staging money only helps if each stage has a date and a purpose. If the project timeline is still loose, wait until the first real cost is booked, then fund that stage. When you have a date, the qualification check takes a minute without touching your credit, and the application takes about five.
A term loan with a committed total that you draw in stages during a set window. Each draw repays on a schedule, and you pay interest only on what you draw.
A fee charged on the part of the commitment you have not drawn, usually a small annual percentage. It pays the lender for keeping the money available.
No. That is the main difference from a line of credit, which lets you draw again after repaying.
Not as a named structure. A line of credit or a staged term or revenue-based request usually covers the same need.
Same-day decision. Applying takes a few minutes and will not affect your credit score.
