Understand the Cost of Capital and Compare
One of the challenges of small business financing is that various lenders use different rate calculations
How can you compare? Use the method below and stay in control...
Let's first review a sample financing
Financing Amount
$50,000
Term
12 months
Received Amount*
$ 48,750
Total Repayment
$ 57,500
* The Received Amount may be different than the Financing Amount if fees are deducted. In our example, a 2.5% Origination Fee was assumed.
Use the following metrics to evaluate the financing
Interest Fee
The Total Repayment Amount Less The Financing Amount
Cents On The Dollar
Interest cents per dollar borrowed, exclusive of other fees
Total Cost Of Capital
Total interest and fees that are a condition to receive your capital
Sample Financing Cost*
Interest Fee
Repayment Amount of $57,500 less Financing Amount of $50,000 = Interest Fee of $7,500.
Cents On The Dollar
Interest Fee of $7,500 divided by Financing Amount $of 50,000 = Cents On The Dollar of $0.15. Your Cents on the Dollar cost to secure this sample financing would be $0.15 for every one dollar borrowed.
Total Cost Of Capital
Interest Fee of $7,500 + Origination Fee of $1,250 = Total Cost of Capital of $8,750.
* The Received Amount may be different than the Financing Amount if fees are deducted. In our example, a 2.5% Origination Fee was assumed.
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