What Is a Draw Period? | Business Lending Glossary

Definition

The timeframe during which a borrower can access funds from a credit line.

Explanation

During the draw period, a borrower can withdraw up to their credit limit, repay, and borrow again — often paying interest only on the outstanding balance. Once the draw period ends, the line enters the repayment period where no new draws are allowed and the full balance must be paid down, sometimes in a lump sum.

Example

A marketing agency has a $150,000 line of credit with a 24-month draw period, drawing $40,000 in Q1 for a campaign, repaying it by Q2, then drawing $70,000 in Q3 for staff expansion.

Why It Matters

Understanding when your draw period expires helps you plan around the repayment phase — getting caught off guard by a sudden shift to full principal payments can create a cash flow crisis.

Frequently asked questions

What happens at the end of a draw period?

The credit line closes to new draws and transitions to a repayment period — any outstanding balance must be repaid according to the schedule in your agreement, which may include a balloon payment.