Generally speaking, if we get good service at a restaurant, we’re going to tip at least 20%. That’s our own Twenty Percent Rule, because hey, server life is hard. We know.
In the finance world, however, the Twenty Percent Rule is something a little different. It’s a rule of thumb that commercial banks often use with their corporate clients, and it says that the client should have deposits worth 20% or more of their average borrowed credit balance.
The goal is to lower the risk to the bank. If Tasty Paste Edible Adhesives, LLC wants to borrow $100,000, they’ll have to deposit $20,000 in another non-interest-bearing account that the bank can seize if the loan goes south. Another little bonus for the bank is that they’re making interest on the entire $100,000, even though the company has effectively only borrowed $80,000, since it had to set that other $20k aside. But it does allow them to keep their commitments to other clients and investors should Tasty Paste default on the loan, which is why this practice exists.
We should point out that the 20% thing isn’t really a hard-and-fast rule...not like it used to be. Nowadays, it really is more of a guideline, and sometimes we can even get the whole deposit requirement stipulation waived if we have a good enough relationship and history with the bank.
At any rate, it’s rare that we’ll see a deposit requirement over 25%, unless our company has a seriously spotty financial record, or is dealing with a seriously paranoid bank.
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Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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