You run a Michelin starred restaurant in Cumbria. During the lockdown period of the Covid-19 pandemic the

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Question:

You run a Michelin starred restaurant in Cumbria. During the lockdown period of the Covid-19 pandemic the restaurant spent several months without being able to serve drinks or food to patrons and your firm is experiencing extreme short term financial needs. You need to urgently obtain £790,000 within the next 2 weeks to cover rent, utilities and salary of employees that have been retained during the following 5 months you expect to be affected by the lockdown. After making some phone calls, you've been able to get the following offers as sources of funding:

• Government loan of £23,000 at 0% interest rate, to be returned in 12 months.

• Cumbriabank is offering £750,000 for five months at a stated annual rate of 1.75%, using inventory (beer and vintage wine) stored in a field warehouse as collateral. The warehouse charges a £10,000 fee, payable at the end of the five months.

• LancaBank can facilitate borrowing up to £500,000 for five months at an APR of 3.5% and a loan origination fee of 0.01%.

• LondonBank offers £790,000 for five months at an APR of 2.95%. The bank will require to maintain a (no-interest) compensating balance of 10% of the face-value of the loan and will charge a 0.1% loan origination fee.

What would be the best financial strategy that would tide you over the following 5 months? Explain your proposal and show all your calculations.