The cost of financing includes all expenses related to borrowing funds for a project. It covers interest payments, loan terms, and associated fees charged by lenders.

• Determines total borrowing cost over time
  
• Affects project profitability and cash flow
  
• Essential for ROI and break-even analysis

Common Components

Financing cost depends on loan structure, tenure, and lender policies. It includes both fixed and variable charges.

• Interest rate: usually ranges from nine to twelve percent per year
  
• Loan tenure: typically five to ten years for industrial projects
  
• Processing fee: around one percent of loan amount
  
• Prepayment or foreclosure charges: vary between zero and two percent
  
• Collateral or mortgage costs, if applicable

Sample Estimate

For a loan of two crore over seven years at ten percent interest:

• Annual interest payment: around twenty lakh
  
• Total interest over loan term: approximately one crore forty lakh
  
• Additional fees: around two to five lakh upfront