The cost of capital is the cost associated with taking on a new investment.
What is capital?
Capital usually refers to financial capital or money, in particular, the amount of cash and assets held by an organisation (for more definitions, explore our Jargon Buster).
The cost of capital is the cost associated with taking on a new investment. In this case, when charities and social enterprises take on repayable finance (social investment).
What is the cost of capital?
When an organisation receives social investment, they will usually need to pay a return for using the money an investor lends them.
Any social investor making loans expects to lend, and then be repaid. The aim is to cover the cost of lending and any default payments which means the money can be recycled and lent again.
How much does social investment cost?
Different investors will have different appetites for loss and return, and this will determine how much capital is available and what it will cost.
The cost of capital is often simplified to the interest rate that you will be charged.
To understand more about the cost of capital in social investment and what key factors you need to consider, watch this video explanation