You have approached your local bank for a start-up loan commitment for $340,000

Question

You have approached your local bank for a start-up loan commitment for $340,000 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 = $340,000, term = one year, up-front fee = 75 basis points, back-end fee = 90 basis points, and rate on the loan = 8 percent. Assume you immediately take down $159,000 and no more during the year. Calculate the total interest and fees you will pay on this loan commitment.

Explanation / Answer

Up-front fee = $340,000 * 0.0075 = $ 2,550.00

Interest = $159,000 * 0.08 = $ 12,720.00

Back-end fee = ($340,000 - $159,000) * 0.0090 = $ 1,629.00

Total interest and fees = $ 16,899.00

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