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 line available was $500,000,of which you took down $300,000.It is now the end of the loan commitment period and your bank is asking you to pay the back-end fees.You have misplaced the paperwork that listed the terms of the commitment,but you know you paid total fees (this does not include any interest paid to borrow the $300,000)of $5,000 on this loan commitment.You remember that the up-front fee was 75 basis points.What is the back-end fee on this loan commitment?
A)6 basis points
B)62.5 basis points
C)75 basis points
D)2.5 basis points

Question

Quizplus · Accepted Answer

The up-front fee is 75 basis points on the total line of $500,000, which equals $3,750. The total fees were $5,000, so the back-end fee is $5,000 - $3,750 = $1,250. The back-end fee is calculated on the unused portion of the line, which is $200,000. Therefore, the back-end fee in basis points is ($1,250 / $200,000) * 10,000 = 62.5 basis points.

Calculating Fees on a Loan Commitment During the Last Year