"We feel the theater is a real important part of the community and it wouldn't be a good thing if it wasn't around anymore," said Mervin Yoder, commercial services officer for First United.
Interest on the loan will be 8.875 percent, and can be adjusted after five years, officials said.
The loan does not call for a large balloon payment, but smaller monthly payments of about $2,000 starting in December, Wolford said.
"It's possible it could be paid off early," Wolford said. Theater officials are pursuing grant money and will ask the Washington County Gaming Commission for funds, she said.
The entire $128,000 will go to pay off a loan from Bulldog Federal Credit Union, said David Barrett, bank president and theater board member.
The historic South Potomac Street theater in March received a six-month loan at 9 percent interest from Bulldog. The theater received an extension on that loan until Dec. 9, Barrett said.
Wolford said the theater had made a $10,000 payment toward the Bulldog loan.
The loan from Bulldog helped theater officials pay off a balloon payment to a group of local banks holding the mortgage on the theater. Theater officials took out the original $250,000 mortgage in 1994 when the theater was in the midst of a funding crisis.