What is Financing Cost?

If you start your own business or buy your any asset or building your office or any manufacturing, you need money. So, you can get this money on loan from Govt. or private banks or other private financial institutions. No one will give you the debt without interest. So, this interest is the financing cost. Except interest, you have to pay other charges. For example, if you do not pay the interest on time, you have to pay the penalty. Sometime, you can get it from financial professionals, so, he or she will also get his or her fees. So, it will also include in financing cost.

Following are the main Examples of Financing Cost which will help to understand it. 

1. Interest Charges

It may be 10% to 15% per year on the value of your taken debt.

2. Financial Fees of Complete the Process For Getting Loan

This is also called processing fees. You have to pay it whether you get loan or not. So, when we calculate the total cost of finance, we have to include this.

3. Service Tax on the Processing Fees of Bank

Bank will take 14.5% service tax on the fees which it will collect.

4. Professional Fees or Commission for Supporting regarding writing of project report

If you go to CA for making project loan report. CA will ensure that bank's given money will spend on business. So, it will make your projected financial statement. For, this, CA will take fees which will be the part of your financing cost.

5. Underwriting Commission if Company is gettling loan through underwiters

If any company has contracted with underwriter for selling his bonds or debenture, underwriter will take underwriting commission. It will be the part of financing cost.

6. Printing Cost for Print Documents

Sometime, borrower can pay the cost of printing the documents or buying the documents. So, this cost is also part of financing cost.


7. Legal Advisor Fees

Good loan is always given on the basis of security. If you have the property, you need to verify it that you are the real owner of this property. Your legal advisor will also mention the approximately value of your property. So, you need to pay legal advisor fees.

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Accounting Education: What is Financing Cost?
What is Financing Cost?
Accounting Education
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