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HART’s mind works in mysterious ways ….

I have kept a record of every Prime Rate change since January 1, 1986. I guess I’m anal that way. There are many times working on year end financial statements that I have to accrue interest on loan balances. Quite contrary to common belief .. “term loan rates” are not that common for business. Mind you, I shouldn’t say that as if I am making a fact, but rather an observation. Usually with my experience, when there are company loans that involve general security arrangements, I have noted that these loans tend to be VARIABLE in nature - in this case .. “Prime plus”. These loans would include demand operating loans, general working capital loans, etc etc. The term loans that usually have specific terms of repayment and interest rates are those usually secured by a specific asset or group of assets that has a serial number - such as automobile financing, equipment loans, etc etc. These are not always the case, just “in General” and in my humble opinion.

Anyway, sometimes you need to accrue interest or estimate what portion of a blended interest and principal loan payment is. Knowing the rate of interest is usually helpful. For instance, if there is a demand loan that is being charged “Prime plus 2.5%” and the last payment was taken out on the 5th of the month, I might accrue interest from the 6th of the month to the end of the month in the financial statements - but I need to know what Prime rate is. That’s where my recap comes into good use.

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