Non-Utilisation Fee (Commitment Fee) — Business Finance Glossary

Why lenders charge a non-utilisation fee

When a lender commits to a facility, it must hold regulatory capital against that commitment even before any funds are drawn. A non-utilisation fee (sometimes referred to as a commitment fee or standby fee) compensates the lender for the cost of that capital reservation and provides an economic incentive for the borrower to draw funds in a timely manner rather than leaving the facility idle.

The fee accrues continuously on the amount of the facility that has not been drawn. As the borrower draws funds, the undrawn amount reduces and the fee base decreases correspondingly.

Calculation and payment mechanics

The non-utilisation fee is expressed as a basis-point rate, typically set at a fraction of the drawn margin — commonly between 20% and 45% of the applicable margin, though this varies by lender, market conditions, and the borrower's credit profile. It accrues daily on the undrawn commitment and is usually paid quarterly in arrear alongside any drawn interest payments.

• If the facility has a utilisation ratchet, the fee rate may reduce at higher average utilisation levels
• Where a facility has multiple tranches, each tranche's undrawn amount is calculated separately
• Voluntary cancellation of commitment eliminates the fee on the cancelled amount going forward

Managing non-utilisation fees

Directors should plan drawdown timing carefully. A large committed but undrawn revolving facility carries a real cost even before the first drawdown. Where the business knows it will not need the full commitment for several months, it may be preferable to request a smaller initial facility with an accordion option to increase it later, reducing the fee exposure. Alternatively, negotiate a shorter availability period for term tranches that are not needed immediately, with automatic cancellation of any undrawn balance.