You have approached your local bank for a start-up loan commitment for $300,000

Question

You have approached your local bank for a start-up loan commitment for $300,000 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 = $300,000, term = one year, up-front fee = 25 basis points, back-end fee = 50 basis points, and rate on the loan = 5 percent. Assume you immediately take down $155,000 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 $300,000 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 = $300,000, term = one year, up-front fee = 25 basis points, back-end fee = 50 basis points, and rate on the loan = 5 percent. Assume you immediately take down $155,000 and no more during the year.

Explanation / Answer

Up-front fee = $300,000 x 0.0025 = $750 Back-end fee = ($300,000 - $155,000) x 0.0050 = $725 Interest = $155,000 x 0.05 = $7750 Therefore, Total interest and fees = $750 + $725 + $7750 = $9225

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