A compensating balance is a checking account balance equal to a certain percentage of the amount borrowed from a bank under a line-of-credit or revolving credit agreement.

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A compensating balance is a common practice for lenders to require borrowers to maintain a minimum balance in a checking account as a condition for obtaining a loan. This helps ensure that the borrower has enough funds available to repay the loan if needed. The percentage of the required balance is typically based on the amount of credit extended and can vary depending on the lender and the borrower's creditworthiness.

A Compensating Balance Is a Checking Account Balance Equal to a Certain