You have approached your local bank for a start-up loan commitment for $350,000

Question

You have approached your local bank for a start-up loan commitment for $350,000 needed to open a computer repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $350,000, term = one year, up-front fee = 50 basis points, back-end fee = 65 basis points, and rate on the loan = 9 percent. Assume you immediately take down $160,000 and no more during the year.

Calculate the total interest and fees you will pay on this loan commitment.

You have approached your local bank for a start-up loan commitment for $350,000 needed to open a computer repair store. You have requested that the term of the loan be one year. Your bank has offered you the following terms: size of loan commitment = $350,000, term = one year, up-front fee = 50 basis points, back-end fee = 65 basis points, and rate on the loan = 9 percent. Assume you immediately take down $160,000 and no more during the year.

Explanation / Answer

Up-front fee = $350,000 x 0.0050 = $1,750

Back-end fee = ($350,000 - $160,000) x 0.0065 = $1,235

Interest = $160,000 x 0.09 = $14,400

Therefore,

Total interest and fees = $1,750 + $1,235 + $14,400 = $17,385

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