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
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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