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When Does a Loan Show Zero Interest Expense on the Loan Financial Statement?

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Occasionally, a loan with very specific parameters will show zero interest expense on its related financial statement. Consider a 15-year commercial real estate loan for $300k with an interest rate of 1.5% and a balloon payment. The orange bar in Andi's pop-up at the bottom of the screen indicates that the tax-adjusted cost of funds exceeds the ROA and that equity funding will be used.

The orange bar shows that equity funding will be used.

 

These types of loans are usually undesirable.  However, within the context of a specific customer relationship, it may make sense. In these situations, PrecisionLender calculations assume that loans where the tax-adjusted cost of funds exceeds the ROA are funded with equity and not borrowing.  This results in a zero interest expense on the corresponding financial statements and an average loan balance equaling the average equity balance.

 

 

The financial statement shows $0 in Interest Expense.

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