What Is The Cost of Cash?

A common question we get is based on the cost of borrowing cash.

The answer always is; It Depends.




It depends mainly on;

1. How quickly you need it ?
2. How much is needed ?
3. What it's for ?
4. What security you are offering ?
5. How long do you need it for ?

Speed

Fast money is expensive money.

If it's Monday and you need cash by Friday, it won't be cheap.  Desperate money is desperate for a reason and to an investor, unless the reason is valid and your request stacks up, they are going to charge a high interest rate as well as an in and out fee.

If this is bridging, then that could be anything from 2% to 3% per month plus a fee to get the cash which could be 3% to 4% of the amount borrowed.

There could then be an exit fee of 2% of the GDV.

Just to be clear, this is not the fees that a broker or introducer would charge.  This is the fees that the lender would require.

How Much

Fees depend to a certain extent on the amount required. The 2% above would be based on, say, £500k. If the amount required was £5m or £10m then it could be an agreed amount rather than a %

What's It For

Are you starting a business?  Are you buying products?  Are you buying a building?

What you need the money for can have a bearing on the cost.

Security

The more security that you have the cheaper the money.

If you are buying a building below market value (BMV) and you are adding value by turning it into something that cash flows very well; (for example a commercial conversion/office building converted into Serviced Apartments) then that would be cheaper than buying perishable goods or Amazon stock. Simply because a building offers great security and stock does not.


How Long?

If your requirement is short term with poor security, then the fees and interest would make up a larger portion of the cost. (NB Very rough calculations here, please understand that the actual fees would be different depending on the deal and whether the money is drawn down in one tranche or not!)

For example, 2% in and out and a 2% per month fee on £500k for 12 months would be:

£10k Arrangement fee
£120k interest
£10k Exit fee

Total £140k or a massive 28% pa

Over 3 Years it might work out like this:

2% Arrangement = £10k
8% pa interest (£40k pa x 3 = £120k)
£10k exit fee

Total £140k or 9.4% pa