Occasionally, a loan with very specific parameters will show zero interest expense on its related financial statement. Consider a 5-year commercial real estate loan for $1 mil with an interest rate of 2%. 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.
