This paper sets forth a capital budgeting technique that is both theoretically correct and sensitive to the special financing needs of the small business. This technique involves evaluating cash flows and determining if they are sufficient to meet the loan payment schedule. A sufficient amount...

Compensating balances are deposits the borrowing firm keeps with the lending bank in non-interest bearing accounts on loans. It is well known that, when there is no compensating balance imposed, the effective cost of debt remains the same in the two different payment methods, full amortization...