Undrawn margin fee

Definition

An undrawn margin fee is a form of non-utilisation fee priced as a percentage of the drawn margin — commonly a third to a half. It compensates the lender for reserving the headroom you have not used, and is part of the true cost of a committed facility.

In plain terms

You pay a slice of the margin on money you have not borrowed, as the price of having it ready to draw.

Why it matters for your company

Size committed facilities to real need so the undrawn fee stays small. See non-utilisation fee and commitment fee.

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In practice

Picture a UK limited company that agrees a committed facility sized comfortably above its everyday needs, as a safety margin for a busy trading period. Once the agreement is live, the undrawn margin fee starts accruing on whatever headroom sits unused, quietly, in the background, regardless of whether the company ever calls on it.

If trading is steady and the company draws down close to its typical requirement, the undrawn portion — and the fee attached to it — stays modest. If the facility was agreed generously "just in case" and most of it sits untouched for long stretches, the fee becomes a real running cost for comfort that was never actually used. The practical discipline is reviewing facility size periodically against actual drawing patterns, rather than leaving a large commitment in place indefinitely.

How lenders read it

From a lender's side, the undrawn margin fee is not a penalty — it reflects that capital set aside for a company's headroom cannot simultaneously be deployed elsewhere. A lender pricing this fee is weighing how much of the facility is likely to sit undrawn over its life, alongside the commitment fee and the non-utilisation fee that may apply alongside it.

For a company, this means the fee structure is itself a signal worth reading: a facility with a meaningfully sized undrawn charge is implicitly asking the borrower to size the commitment realistically rather than treat it as free optionality. Directors comparing facilities should weigh this fee alongside the interest charged on amounts actually drawn, since the two together determine the true cost of holding a facility open.