Enter the total amount borrowed, the interest rate, and the time into the calculator to determine the cost of funds.

Cost of Funds Formula

The following formula is used to calculate the cost of funds.

COF = B * IR/100 * T

  • Where COF is the cost of funds ($)
  • B is the borrowed amount of funds ($)
  • IR is the interest rate of the borrowed funds (%)
  • T is the total amount of time the funds are borrowed

Cost of Funds Definition

What is cost of funds?

Cost of funds describes the total interest expense paid by a company that borrows money in order to fund projects or other aspects of the business.

The costs of funds are dependent on the borrowed amount, interest rate, and term of the borrowed funds.

Example Problem

How to calculate cost of funds?

The following example problem outlines the steps required to calculate the cost of funds for a business project.

First, find out how much money needs to be borrowed in order to fund the project. For this example, we are looking at a renovation project to the office building that will cost $50,000.00.

Next, determine the interest rate of the borrowed money. After shopping around offers, this company is able to find an interest rate as low as 3.5% per year.

Next, determine the total repayment time on the borrowed funds. The 3.5% loan must be paid off in 5 years in this case.

Finally, calculate the cost of funds using the formula above:

COF = B * IR/100 * T

COF = $50,000 * 3.5/100 * 5

COF = $8,750.00