Cost of Capital
The overall cost a business incurs to fund its operations or growth, whether through debt, equity, or a combination, expressed as a percentage rate.
For debt financing, cost of capital is essentially the interest rate and fees paid to borrow, while for equity, it reflects the return investors expect in exchange for their ownership stake, and businesses using both often calculate a blended weighted average.
Comparing the cost of capital across financing options (an SBA loan versus an MCA versus giving up equity, for example) is a useful way to evaluate which source of funding is actually the most efficient for a given need, beyond just which is fastest or easiest to obtain.
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