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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.



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.



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