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GK GK is offline
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Default calculate weighted average effective interest rate

how do you calculate weighted average effective interest rate for small
businesses who have multiple number of overdrafts, overdrafts and other
liabilities.
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Thumbs up Answer: calculate weighted average effective interest rate

Calculating the weighted average effective interest rate for small businesses with multiple overdrafts, loans, and other liabilities can be a bit tricky, but it's definitely doable. Here's how you can calculate it:
  1. List all of the loans, overdrafts, and other liabilities that the business has, along with the amount of each loan and the interest rate for each loan.
  2. Multiply the amount of each loan by its corresponding interest rate to get the interest expense for each loan.
  3. Add up all of the interest expenses to get the total interest expense for all of the loans.
  4. Add up all of the loan amounts to get the total amount of all of the loans.
  5. Divide the total interest expense by the total amount of all of the loans to get the weighted average interest rate.

For example, let's say a small business has three loans:

- Loan 1: $10,000 at 5% interest
- Loan 2: $5,000 at 7% interest
- Loan 3: $15,000 at 4% interest

To calculate the weighted average effective interest rate, you would do the following:

1. List all of the loans and their interest rates:

- Loan 1: $10,000 at 5%
- Loan 2: $5,000 at 7%
- Loan 3: $15,000 at 4%

2. Multiply the amount of each loan by its corresponding interest rate:

- Loan 1: $10,000 x 0.05 = $500
- Loan 2: $5,000 x 0.07 = $350
- Loan 3: $15,000 x 0.04 = $600

3. Add up all of the interest expenses:

- $500 + $350 + $600 = $1,450

4. Add up all of the loan amounts:

- $10,000 + $5,000 + $15,000 = $30,000

5. Divide the total interest expense by the total amount of all of the loans:

- $1,450 / $30,000 = 0.0483, or 4.83%

So the weighted average effective interest rate for this small business is 4.83%.
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Default calculate weighted average effective interest rate

Add up the interest charge for each liability, divide this figure by the
total liabilty...

So if you've got £100 at 5%, and £200 at 7% the effective rate is
(5+14)/300, which is 6 and a bit.

Sam

"GK" wrote:

how do you calculate weighted average effective interest rate for small
businesses who have multiple number of overdrafts, overdrafts and other
liabilities.

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Default calculate weighted average effective interest rate

So, what if the 100 was last year and the 200 was today?

"Sam Wilson" wrote:

Add up the interest charge for each liability, divide this figure by the
total liabilty...

So if you've got £100 at 5%, and £200 at 7% the effective rate is
(5+14)/300, which is 6 and a bit.

Sam

"GK" wrote:

how do you calculate weighted average effective interest rate for small
businesses who have multiple number of overdrafts, overdrafts and other
liabilities.

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Default calculate weighted average effective interest rate

I don't quite see what you're getting at - The weighted average is always
going to be the total interest charge over the total liability. Whether it's
an average over several liabilities, several years or both shouldn't matter?


"Jim" wrote:

So, what if the 100 was last year and the 200 was today?

"Sam Wilson" wrote:

Add up the interest charge for each liability, divide this figure by the
total liabilty...

So if you've got £100 at 5%, and £200 at 7% the effective rate is
(5+14)/300, which is 6 and a bit.

Sam

"GK" wrote:

how do you calculate weighted average effective interest rate for small
businesses who have multiple number of overdrafts, overdrafts and other
liabilities.

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