Pricing
Non-utilisation fee
A non-utilisation fee is what you pay for money you have not borrowed. It is charged on the undrawn portion of a facility, and it turns headroom from something free into something priced.
Also called commitment fee · undrawn fee · ticking fee · availability fee · delayed draw
The fee follows the margin. At 35% of it, a wider margin makes unused headroom proportionately dearer.
| Margin | Fee on undrawn |
|---|---|
| Margin 2% | 0.7% |
| Margin 3% | 1.05% |
| Margin 4% | 1.4% |
| Margin 5% | 1.75% |
Convention: around 35% of the applicable margin, per Loan Market Association practice. Derived arithmetic across margins.
What you are paying for
A committed facility obliges the lender to advance money on demand within the agreed terms. That obligation costs them something: they must hold capital against it and they cannot deploy the money elsewhere. The non-utilisation fee, also called a commitment fee, is what they charge for standing ready.
It is the reason headroom is not free. A borrower who takes a larger revolving facility than the business needs, on the reasoning that spare capacity is prudent, is buying an option and paying an annual premium for it. That can be an excellent trade. It is a trade nonetheless, and it should be priced rather than assumed.
The 35% convention
UK market convention, following Loan Market Association practice, sets the fee at around 35% of the applicable margin on the undrawn amount. So the fee is not a fixed percentage of the facility; it moves with the pricing of the loan itself.
At a margin of SONIA plus 3%, the undrawn line costs a little over 1% a year. At a margin of 5% it costs about 1.75%. That scaling has a consequence borrowers rarely notice: a more expensive facility is also a more expensive place to keep unused capacity, so the case for oversizing weakens exactly where the debt is dearest.
Where a margin ratchet applies, check whether the commitment fee moves with it. A fee expressed as a percentage of the applicable margin steps down when the margin does; one fixed at closing does not.
An unused £3m tranche at SONIA plus 3% costs about £31.5k a year, and £157.5k across a five-year facility.
| Held for | Cumulative fee |
|---|---|
| 1 year | £31.5k |
| 2 years | £63k |
| 3 years | £94.5k |
| 5 years | £157.5k |
Illustrative: £3m undrawn at 35% of a 3% margin. Derived arithmetic on the published convention.
What an unused tranche costs
The percentages sound small and the cash accumulates. A £3m tranche held undrawn at 1.05% costs about £31,500 a year, £63,000 over two years, and roughly £157,500 across a five-year facility.
That is real money for capacity that was never used, and it is worth comparing against what the headroom was insuring against. If the £3m exists to fund an acquisition that may or may not happen, £157,500 is the price of the option and the question is whether the opportunity is worth it. If it exists because nobody sized the facility carefully, it is simply a cost.
The comparison that clarifies it is the alternative: a smaller committed line plus a plan for raising incremental debt if needed. That plan carries execution risk and takes time, which is precisely what the committed line removes. Neither answer is automatically right, but the trade should be made deliberately.
Where the fee applies and where it does not
The fee attaches to committed availability. A drawn term loan carries none, because the margin is already running on the full amount. An uncommitted accordion carries none either, since the lender has promised nothing and retains discretion to decline.
A revolving credit facility is the classic case: the fee runs on whatever portion of the line is undrawn at any moment, so it fluctuates with utilisation. A delayed-draw term tranche usually attracts a ticking fee during its availability window, which behaves the same way.
The distinction between a committed accordion and an uncommitted one therefore has a price attached. An uncommitted accordion is free to hold and may not be there when you need it. A committed one is reliable and costs you every quarter you do not use it.
The fee attaches to committed availability. Where a lender has not committed, there is usually nothing to pay.
| Facility element | Fee? |
|---|---|
| Drawn term loan | None |
| Uncommitted accordion | None |
| Delayed-draw tranche | Ticking fee |
| Revolving facility | On the undrawn line |
Market convention at £3-15m. Individual facilities vary.
Ticking fees on a delayed draw
Where a facility funds staged spending, a capex programme or an acquisition with a deferred completion, the money is committed at signing and drawn later. The ticking fee prices that gap.
The variables worth negotiating are the rate, the length of the availability window, and whether the fee steps up the longer the tranche remains undrawn. A stepped ticking fee is common on transaction financing and is designed to push the borrower to draw or release the commitment.
A practical point on acquisition financing: where completion slips, the ticking fee runs on. A borrower whose deal takes an extra quarter to close pays for the delay twice, in ticking fee and in the extended exclusivity and legal costs, which is one of several reasons to build realistic timing into the facility rather than optimistic timing.
How it changes the sizing decision
The right way to size a revolving facility is against the working capital swing the business really sees, not against a comfortable-sounding round number.
The size follows the peak-to-trough movement in working capital across at least two years, plus a margin for a bad quarter. A business whose swing is £1.5m and which takes a £4m line is paying for £2.5m of permanent headroom it will not use, at roughly £26,000 a year on the 35% convention at a 3% margin.
Two structures reduce the cost without giving up the comfort. A smaller committed line with an uncommitted accordion above it prices only the part you rely on. And where the peak is seasonal and predictable, a facility that steps up for defined months costs less than one sized to the peak year-round, though not every lender will engage with it.
What moves in negotiation
The 35% convention is a convention rather than a rule, and several things around it move.
The percentage itself moves where a competitive process is running, and the base it applies to matters as much: a fee on the full undrawn commitment is dearer than one on the average undrawn balance over the period, which rewards a borrower who uses the line. Some facilities include a utilisation threshold below which no fee accrues, which suits a business that keeps a line mostly drawn.
On a delayed draw, the availability window and any step-up are usually more negotiable than the rate. And where a margin ratchet exists, tying the commitment fee to the applicable margin rather than the opening margin gives you the benefit of a step-down you have earned.
Common questions
What is a non-utilisation fee?
A charge on the undrawn portion of a committed facility. The lender is obliged to advance the money on demand and holds capital against that obligation, so they charge for standing ready. It is why spare headroom on a revolving facility is not free.
How much is a commitment fee in the UK?
UK market convention, following Loan Market Association practice, sets it at around 35% of the applicable margin. At a margin of SONIA plus 3% that is a little over 1% a year on the undrawn amount. At a 5% margin it is about 1.75%, because the fee scales with the margin rather than being fixed.
What does an unused facility cost me?
A £3m tranche held undrawn at 1.05% costs about £31,500 a year, £63,000 over two years and roughly £157,500 across a five-year facility. Whether that is worth paying depends on what the headroom is insuring against, but it should be a deliberate decision rather than a rounding error in the sizing.
Do I pay a commitment fee on a term loan?
Not on the drawn amount, because the margin is already running on it. You may pay a ticking fee on a delayed-draw tranche during its availability window, and you will pay on the undrawn portion of any revolving facility.
What is a ticking fee?
A commitment fee on a tranche committed at signing but drawn later, common where a facility funds staged spending or an acquisition with a deferred completion. It often steps up the longer the tranche stays undrawn, which is designed to push you to draw or release the commitment.
Is it cheaper to take a smaller facility?
Usually, if you can live with the capacity. Size the revolving line against the peak-to-trough working capital swing you see across at least two years, plus a margin for a bad quarter. A business with a £1.5m swing taking a £4m line pays roughly £26,000 a year for headroom it will not use.
Should I take a committed or uncommitted accordion?
It is a trade with a price attached. An uncommitted accordion costs nothing to hold but the lender retains discretion, so it may not be there when you need it. A committed one is reliable and attracts the fee every quarter it stays undrawn. Where the incremental money funds an opportunistic acquisition, uncommitted is often the better value.
Does the commitment fee fall if my margin ratchets down?
Only if the drafting ties it to the applicable margin rather than the opening margin. Where it is expressed as a percentage of the applicable margin it steps down with the ratchet; where it is fixed at closing it does not. It is a small point worth checking, because a facility that earns a step-down should get the benefit on both lines.
The full treatment sits in the guide: rcf vs term loan.
Related terms
This page explains a term as it is used in the UK lower-mid-market. It is general information, not advice on any particular facility. Terms vary between lenders and between deals, and the drafting in your own agreement governs.