You have approached your local bank for a start-up loan commitment for $380,000

Question

You have approached your local bank for a start-up loan commitment for $380,000 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 = $380,000, term = one year, up-front fee = 50 basis points, back-end fee = 60 basis points, and rate on the loan = 6 percent. Assume you immediately take down $163,000 and no more during the year. Calculate the total interest and fees you will pay on this loan commitment.

Total interest and fees $

Explanation / Answer

Calculation of interest and fees on loan Up front fees on Loan = 0.50% * Loan Commitment = 0.50%*$380000 = $1,900 Back end fees on Loan = 0.50% * Loan take down = 0.60%*$163000 = $978 Interest on Loan for 12 months = $163000*6% = $9,780 Total interest and fees on loan $12,658

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