You have approached your local bank for a start-up loan commitment for $420,000

Question

You have approached your local bank for a start-up loan commitment for $420,000 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 = $420,000, term = one year, up-front fee = 45 basis points, back-end fee = 60 basis points, and rate on the loan = 5 percent. Assume you immediately take down $167,000 and no more during the year.

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

Total Interest and Fees-

You have approached your local bank for a start-up loan commitment for $420,000 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 = $420,000, term = one year, up-front fee = 45 basis points, back-end fee = 60 basis points, and rate on the loan = 5 percent. Assume you immediately take down $167,000 and no more during the year.

Explanation / Answer

The total interest and fees payable on loan commitment is as under, Up front fees ($420000 * 0.45%) $1,890.00 Interest for one year ($167000 *5%) $8,350.00 Back end fees ($167000 * 0.60%) $1,002.00 Total Interest and Fees $11,242.00

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