Net interest income on a credit line — a borrower's guide

Updated May 2026.

On a single $1M business credit line, the bank can earn anywhere from $5,000 to $81,000 in a year, depending on how much the borrower draws. That's a 16× range on the same contract — and a careful reader will notice that most of the money in that 16× isn't strictly “net interest income” in the bank-accounting sense. It's a mix of interest income, commitment fees, and arrangement fees, all rolled together into what practitioners loosely call NII at the facility level. The strict definition is narrower: interest income minus interest expense. Both numbers matter, and confusing them is the most common error in conversations about facility earnings.

This guide walks through both numbers — strict NII and total facility revenue — what makes each one swing, why utilization dominates the math more than the rate does, and where these facility-level numbers connect to bank-level NIM. Worked numbers come from the business overdraft income calculator and are verifiable by punching in the same inputs.

What NII actually is — strict and loose

Strict definition first. At the bank-accounting level (FFIEC Call Report, GAAP), net interest income is interest income (what the borrower pays in interest on the drawn balance) minus interest expense (what the bank pays for the funds it lent out — its cost of funds, typically SOFR plus a funding spread, or a blended deposit rate). Commitment fees and arrangement fees are non-interest income — separate line items on the call report.

At the single-facility level, strict NII boils down to a clean formula: strict NII = spread × drawn balance × time. On the $1M example below at 100% draw with an 8% lending rate and 5% cost of funds, strict NII is about $30,400 a year — that's 3% spread × $1M drawn, day-count adjusted.

Loose usage — what you'll hear in the wild. Practitioners on facility desks (and the income calculator on this site) use “NII” to mean total facility revenue: interest income + commitment fee + arrangement fee + any other line-item fees. That's not strictly NII (the fees are non-interest income on the call report), but it's how internal slide decks and conversation usually frame a single line's contribution. Both numbers are real; they just measure different things.

To keep the difference visible, this page uses both terms on purpose:

• Total facility revenue(also called facility income) — the gross sum, including non-interest fees. This is what the calculator labels “Total NII (gross).”
• Strict NII — interest income minus interest expense, at the facility level. Equals spread × drawn × time.
• Net facility income— facility revenue minus funding cost (and minus overhead if you turn it on). What the calculator labels “net facility income.”

That's a vanilla revolver. More structured facilities add fees on top — letter-of-credit issuance, drawdown fees, audit and collateral-monitoring fees on asset-based loans, renewal fees on multi-year lines. They flow into facility revenue. They don't flow into strict NII.

Why utilization is the dominant lever

Take a $1,000,000 line at 8% lending rate, 5% cost of funds, 0.50% commitment fee on undrawn, one-year tenor, Actual/360 day-count basis. Both numbers — total facility revenue and strict NII — at four utilization levels:

• 0% drawn (line totally idle) — interest income $0, commitment fee $5,069. Facility revenue: $5,069. Strict NII: $0 (no drawn balance, no spread to apply). Yield on limit: 0.50%.
• 50% drawn — interest income $40,556, commitment $2,535. Facility revenue: $43,090. Strict NII: ~$15,200 (interest income minus funding cost on $500K drawn). Yield: 4.25%.
• 70% drawn — interest income $56,778, commitment $1,521. Facility revenue: $58,299. Strict NII: ~$21,300. Yield: 5.75%.
• 100% drawn (line maxed) — interest income $81,111, commitment $0 (nothing undrawn). Facility revenue: $81,111. Strict NII: ~$30,400 (3% spread × $1M, day-count adjusted). Yield: 8.00%.

Same facility. Same 8% rate. Same one year. Total facility revenue ranges $5K to $81K — about 16× — driven entirely by utilization. Strict NII has its own range: $0 to $30K, scaling linearly with the drawn balance. That's why a bank assessing a new line cares less about repricing it 25 basis points and more about the borrower's realistic utilization profile. A 25 bps rate lift on a 70%-utilization line is about $1,750 a year in extra interest income. Moving that same borrower from 50% to 70% average utilization is about $15,000 a year in extra facility revenue. Different orders of magnitude.

Spread vs strict NII — where they connect

Spread is the rate-on-drawn margin: lending rate minus the bank's cost of funds. On the example above, 8% − 5% = 3% spread, which doesn't change with utilization. Strict NII is the dollar income from that spread, which moves linearly with the drawn balance.

The relationship is direct: strict NII = spread × drawn balance × time. At 100% utilization, that's 3% × $1M ≈ $30,400 a year (with day-count adjustment). At 0% utilization, strict NII is $0 — no drawn balance, no spread to apply. Spread is the rate dimension; utilization is the size dimension; strict NII is the dollar product. Commitment fees and arrangement fees don't flow into strict NII (they're non-interest income), but they do flow into total facility revenue — which is why the “NII” number on the calculator at 0% draw is $5,069 even though strict NII is $0.

If forced to pick one number to lead with: spread for any contract decision (extend or not, reprice or not, syndicate at what margin), NII for any portfolio review or year-end report. Most internal slide decks use the two interchangeably — fine when everyone in the room knows the difference, a real source of confusion when they don't.

For the comparison logic and worked examples, see the spread vs yield bridge guide — the math's identical, the framing is just rate-vs-income.

NII vs NIM at the bank level

Strict NII is the building block. Net interest margin (NIM) is just NII expressed as a percent of average earning assets — a normalized version of NII at the portfolio level. NIM = total strict NII across the loan book ÷ average earning assets. A bank with $10B in earning assets and $300M of NII posts a NIM of 3.0%.

Important — what NIM is NOT:NIM is not net of overhead, loan-loss provisions, capital cost, or tax. Those layers come BELOW NIM in the bank's P&L (NIM → operating expenses → loan loss provision → tax → ROE). When someone says “our NIM is 3.2% but after overhead it's 1.8%,” they're really walking the P&L down past NIM, not redefining what NIM measures.

At the facility level, the analog of NIM is yield-on-limit — facility revenue ÷ facility size, annualized. Yield-on-limit on a single revolver at 70% utilization is about 5.75% in the example above. That's comparable across facilities of different sizes (5.75% yield on $1M and 5.75% yield on $5M mean the bank is earning the same return on capital deployed, before risk-adjustment). Note that yield-on-limit uses facility revenue (gross), not strict NII; that's the practitioner-loose definition again.

One thing single-facility revenue doesn'tcapture: the bank's cost of capital, regulatory capital allocation under Basel, loan-loss provisioning, or risk-adjusted return. Those live at the portfolio model. Single-facility revenue is what one line contributes; risk-adjusted return on capital (RAROC) is what survives after the bank subtracts overhead, capital cost, and provisioning. A profitable facility-revenue number can still be unprofitable on a risk-adjusted basis — that's a different calculation.

Where the facility-revenue number breaks down

Three things the single-facility revenue view doesn't handle well, worth flagging:

1. Variable utilization within the period. The calc assumes constant utilization — a borrower at 70% the whole year. Real revolver use is lumpy: 90% in Q1, 30% in Q2, 50% in Q3-Q4. For a clean number, break the year into sub-periods and compute each separately.
2. No cost of capital.Single-facility revenue is pre-Basel-capital-allocation. A heavily-drawn line takes more regulatory capital, which has a real cost the gross-revenue number doesn't deduct. For risk-adjusted return on capital (RAROC), portfolio models layer this in.
3. No expected-loss provisioning.The facility-revenue number ignores the bank's expected credit loss on the facility. On a strong borrower, that's small. On a weaker one, expected loss can eat a meaningful slice of facility revenue before it shows up as profit.

The single-facility view is the right level for understanding how a specific line earns. It's the wrong level for deciding whether the bank should hold that line — that decision needs the portfolio-model layers above.

Frequently asked questions

Sources and methodology

The math is simple-interest accrual on a per-period basis, standard for revolver-style facilities. Industry framing on day-count conventions, commitment-fee accrual, facility-fee structures, and loan-portfolio NII reporting comes from the OCC Comptroller's Handbook on Loan Portfolio Management. Benchmark-rate context (SOFR, Prime, Treasury yields used as cost-of-funds proxies) comes from Federal Reserve H.15 Selected Interest Rates. All worked-example numbers come directly from the income calculator and are verifiable by re-running the same inputs.

What to do next

1. 01
   Run the income calculator

   Plug in your facility limit, rate, cost of funds, and commitment fee. Drag utilization to see NII swing across the full range.

2. 02
   Read the spread vs yield bridge guide

   Why spread doesn't move with utilization but yield does, and which one to use for what kind of decision.

3. 03
   See the borrower-side mirror

   Same facility math, viewed as cost instead of income — the mechanics of how interest accrues on what you actually draw.

4. 04
   Zoom out to the full relationship picture

   NII is one income line. Deposit balances, treasury fees, and relationship cross-sell are the rest of how the bank actually earns on the same customer.