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Total cost of capital
Also called all-in cost, cost of capital, true cost.
Every dollar leaving the business for a financing, measured against every dollar actually received — fees deducted at funding included, expressed in money before it is expressed in percentages.
Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.
What it means
The calculation has two sides and both get distorted. On the money-in side, the number that matters is net proceeds: the stated advance or loan amount minus origination fees, underwriting or documentation fees, wire fees, and any broker points deducted at funding. On the money-out side it is total remittances plus any fee charged during the life of the deal and any fee charged at payoff.
Expressing it as a percentage requires a time dimension, which is where products stop being comparable. A 1.25 factor over four months and a 1.25 factor over twelve months cost the same dollars and are wildly different in annualised terms. The reverse is also true: a lower headline percentage over a much longer period can cost more in total dollars. Neither number alone answers the question.
The practical comparison for a business owner is two figures side by side: total dollars out, and dollars out per month over the expected period. The first tells you what the money costs. The second tells you whether you can survive it.
Where this one catches people
Fees deducted at funding are the most consistently overlooked component, because the cost is calculated on the gross while the business receives the net. If a merchant receives, say, $92,000 against a $100,000 advance and repays on the $100,000 base, they have paid for money that never arrived. Always ask for the wire amount, not the approval amount.
Worked through
Illustrative only. $100,000 advance at 1.32. Origination fee 3 percent ($3,000), underwriting fee $495, wire fee $150. Net wired: $96,355. Total repaid: $132,000. Dollars of cost: $35,645 on $96,355 received, over an estimated 10 months. That is roughly $3,565 a month of cost, and a total cost of about 37 percent of what was actually received — not the 32 percent the factor implies.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Sources and checks
Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.
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a 100,000 advance at 1.32 with 3,645 of netted fees wires 96,355, costs 35,645, and prices at about 37% of cash received and about 3,565 a month over ten months
example100,000 x 1.32 = 132,000 total repaid. Fees: 3% x 100,000 = 3,000, plus 495 underwriting, plus 150 wire = 3,645; 100,000 - 3,645 = 96,355 net wired. Cost = 132,000 - 96,355 = 35,645. 35,645 / 96,355 = 36.99%, i.e. 'about 37 percent', against the 32% the factor implies. 35,645 / 10 = 3,564.50 a month. All four figures as stated.
Total cost of capital — common questions
What does total cost of capital mean?
Every dollar leaving the business for a financing, measured against every dollar actually received — fees deducted at funding included, expressed in money before it is expressed in percentages.
Where does total cost of capital catch people out?
Fees deducted at funding are the most consistently overlooked component, because the cost is calculated on the gross while the business receives the net. If a merchant receives, say, $92,000 against a $100,000 advance and repays on the $100,000 base, they have paid for money that never arrived. Always ask for the wire amount, not the approval amount.
Is total cost of capital the same as an interest rate?
Total cost of capital is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does total cost of capital apply to?
Merchant Cash Advance, Working Capital, Term Loan, Business Line of Credit, Invoice Financing.
Is there a worked example of total cost of capital?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside total cost of capital?
Annual percentage rate, Factor rate, Net funding amount, Origination fee, Total repayment amount.
Has this definition been checked?
Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.