The calculation of the EAR (Effective Annual Rate) must factor in commitment fees, origination fees, compensating balance requirements, usable funds, and any other costs associated with a loan. Why are these important considerations when deciding the type of loan that is best for a business?

---When you go for a business loan, you must check the various costs attached with it including interest rate. Interest rate is the direct cost of any loan, however it becomes important for a business owner to factor all other costs associated with the loan which are in indirect form as it would reflect the true cost of loan and the business would need to compare the overall cost of the loan to the benefits/profits generated by the fund raised via loan. If the probable benefits/profits are lesser than the true cost, the loan must not be taken.

If these costs are not given sufficient consideration while deciding on loan, it could be very harmful as these costs may be substantial and would increase the effective interest rate substantially.

Required: The calculation of the EAR (Effective Annual Rate) must factor in commitment fees, origination fees, compensating balance requirements, usable funds, and any other costs associated with a loan. Why are these important considerations when deciding the type of loan that is best for a business? Write at least 300 words.

Please write in your own words and don't copy from anywhere. Thank You!