A line fee is a percentage-based charge on the undrawn (available but unused) portion of a committed credit facility. It is separate from the interest the borrower pays on funds actually drawn down. The line fee compensates the lender for keeping the capital reserved and available even when the borrower is not using it.
Line fees appear most often on staged facilities such as construction loans, where the borrower draws down in tranches over time and a meaningful portion of the facility sits undrawn for months. They can also feature on revolving working capital facilities where the borrower expects to use only part of the committed limit on average.
For borrowers, the line fee is one component of the total cost of a facility and should be modelled alongside the interest rate and establishment fee. A facility with a low headline rate but a high line fee on a long undrawn period may be more expensive than a higher-rate facility with no line fee. The credit team and the broker should walk a developer through both metrics before settling on the structure.