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Definition of compensating balances

WebSep 26, 2024 · Compensating Balances Plan: A type of premium paid by an insured business. Compensating balances plans allow firms to subtract various expenses from … WebA more thorough explanation: A compensating balance is the minimum amount of money that a borrower must keep on deposit with a bank as a condition for a loan or a line of credit. This balance is usually a percentage of the loan amount and is held in a non-interest-bearing account. Let's say a business wants to borrow $100,000 from a bank.

Compensating balance financial definition of compensating balance

Webcompensating balance definition: the amount of money that a customer who has taken out a loan with a bank or who uses the bank's…. Learn more. WebDec 6, 2024 · Subtract the compensating balance from the loan amount and then divide the result into your total interest. In the current compensating balance example, for instance, you subtract $25,000 from $150,000, giving you $125,000. Dividing the $9,000 total interest by $125,000 gives you .072. Your effective interest rate is 7.2%. good bible verses to read https://epicadventuretravelandtours.com

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WebDec 25, 2024 · A compensating balance is a minimum bank account balance that a borrower agrees to maintain with a lender. The purpose of this balance is to reduce the … WebCompensating balance is a term used to describe the minimum balance that borrowers must maintain for their loan accounts. For the lender, the compensating balance serves as a way to reduce its lending costs. Lenders can use this amount to reinvest in other ventures or keep some or all of the proceeds. WebNov 29, 2024 · Definition. The financial accounting term restricted cash and compensating balances refers to monies that are reserved and not generally available to the company. Restricted cash can include minimum balances on bank accounts, while compensating balances include money needed to repay a loan. Explanation. Companies hold cash for … good bible verses for teenage boys

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Definition of compensating balances

Compensating balance financial definition of compensating balance

WebNov 8, 2024 · These compensating balances result in the borrower paying a higher effective interest rate because the bank has the use of the money. For example, suppose that Sample Company has two separate loans of $1,000,000 bearing interest at 12 percent. One has no compensating balance requirement, but the other calls for $200,000 to be … WebThe meaning of COMPENSATION BALANCE is a timepiece balance wheel so constructed (as of two metals of different expansivities) that variations of temperature produce such changes in its mean rim diameter as offset the changes produced in the hairspring.

Definition of compensating balances

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WebFirms hold cash, in part, to satisfy compensating balance requirements. Compensating balances are cash balances held at: A. the firm in excess of its transactions needs. B. the firm that are below that of its transactions needs. C. the firm in excess of its cash inflows. D. commercial banks to pay implicitly for bank services. WebCompensating Balances synonyms, Compensating Balances pronunciation, Compensating Balances translation, English dictionary definition of Compensating Balances. Noun 1. compensating balance - a minimum credit balance that a bank may require a borrower to keep on deposit as a condition for granting a loan; a common...

WebDefinition of compensating balance. deposit that a bank can use to offset an unpaid loan. No interest is earned on the compensating balance, which is stated as a percentage of … Accounting rules for financial reporting require that compensating balances be reported separately from cash balances in the borrowers' financial statements if the dollar amount of the compensating balance is material.1 A material amount is defined as an amount large enough to affect the opinion of a … See more Assume a clothing store needs a $100,000 line of credit (LOC) to manage its operating cash flow each month. The store plans to use the LOC to purchase inventory at the … See more Once the LOC is in place, the clothing store needs to manage cash flow to minimize the interest expense it's paying for use of the LOC. … See more

WebSample Clauses. Compensating Balances. The Borrower will maintain on deposit with the Bank in non - interest bearing accounts average daily collected balances, in excess of that required to support account activity and other credit facilities extended to the Borrower by the Bank, an amount at least equal to the sum of (i) $ n/a and (ii) n/a ... WebThe meaning of COMPENSATE is to be equivalent to : counterbalance. How to use compensate in a sentence. Synonym Discussion of Compensate.

WebNoun 1. compensating balance - a minimum credit balance that a bank may require a borrower to keep on deposit as a condition for granting a loan; a common...

WebCompensating Balances synonyms, Compensating Balances pronunciation, Compensating Balances translation, English dictionary definition of Compensating … good bicep workouts with weightsWebcompensating balances definition. A bank account balance that a corporation agrees to maintain with a current or potential lender. For example, a corporation may agree to keep … healthiest string cheeseWebJun 14, 2024 · The balance you agree to maintain with a lender as a borrower is known as a compensating balance. It’s intended to reduce the cost of lending for the lender … healthiest sub at jersey mike\u0027s