Question

Help Save &E Calculating Fees on a Loan Commitment During the last year you have had a loan commitment from your bank to fund inventory purchases for your small business. The total loan avalable was $1.080.00. of which you took down $830,000. It is now the end of the loan commitment period and your bank is acking you to pay the backend fees. You have misplaced the paperwork that isted the terms of the commitment, but you know you paid total fees this does not include any Interest paid to borrow the $830000 of $4.865 on thes loan commitment You remember that the up-front fee was 30 basis points what is the back-end fee on this loan commitment Mutiple Choice 35 basis points 65 besis points 65 basis points 35 besis points

Answer 1

Total Loan available = $ 1080,000

Loan you took down = $ 830,000

Total fees excluding any interest = $ 4865

Front end fees rate = 30 basis points or .30%

Front end Fees amount = $ 1080,000 * .30%

= $ 3240

Total Fees = Front end fees + Back end fees

Back end fees = $ 4865-$3240

= $ 1625

Back end fees = back end fees rate * (Loan available or commitment - Loan took down)

1625 = back end fees rate*(1080000-830000)

1625 = back end fees rate *250000

Back end fees = 1625/250000

Back end fees rate = 0.0065 or .65 % or 65 basis points

So, back end fees on this loan commitment is 65 basis points.

Note- If you need any clarification regarding this solution, then you can ask in comments

If you like my answer then please Up-vote as it will be motivating.