Montcalm Enterprises is seeking bids on short-term loans with area banks. It expects its average outstanding borrowings to equal $320,000. Which of the following terms offers Montcalm the lowest effective rate?
Town Bank: revolving credit agreement for $500,000 with a 15% APR, 0.5% commitment fee on the unused portion.
Village Bank: revolving credit agreement for $400,000 with a 12% APR, 1.0% commitment fee on the unused portion and a 10% compensating balance requirement based on the size of the bank’s commitment.