Cost of Finance
What is cost of finance?
The cost of finance is the total cost involved in borrowing debt capital to finance a business arrangement. The business arrangement may be it a project, an asset purchase or the money required to actually build a business.
What is cost of finance like?
Cost of finance is like hiring equipment to help you complete a home project like landscaping. You get the use of the landscaping equipment but you still must pay a hiring charge based on the amount of time that you use the equipment. Borrowed cash is also an asset that helps a business achieve its goals and the business must pay an interest cost for the time that it uses the borrowed money.
What is the purpose of cost of finance?
Cost of finance exists because it is the return on investment paid to people or institutions who provide funds to others. Lending money is their business and so they charge an interest cost to others as the price paid for obtaining loans and borrowings.
What are the different cost of finance?
Cost of finance may include interest payments, financing fees that are charged by financial institutions in setting up the loan, and the fees or salaries of any personnel that are required to help secure the finance.