Compensating balance is defined as a minimum balance to be maintained and used to offset cost incurred by a bank for a business loan. So, if analog computers needs to borrow $475,000 from the midland bank and the bank requires a 15% compensating balance; they need to borrow $71,250 (15% of loan amount) plus the actual loan amount of $475,000 to end up with $475,000 spendable cash.
