Most developers measure capital by its rate. The more important measure is its opportunity cost: the return you give up by locking your equity into a single project instead of putting it to work across several.
If a project ties up most of your equity, you cannot start the next one. A structure that uses more debt and less of your cash, even at a higher rate, can leave you free to run two or three deals where you could only run one. The cheaper-rate, equity-heavy version often delivers the worse return on equity.
Return on equity measures profit against the cash you actually commit, not against the total project cost. Using more debt and less equity, at a sensible level of risk, can lift that ratio because the same profit sits on a smaller equity base. The catch is that leverage cuts both ways: it amplifies the result if the project performs and the loss if it does not. The art is matching the gearing to the strength of the deal.
We model the cost of capital against return on equity, time and risk. On a deal that supports it, higher leverage at a higher rate can comfortably beat lower leverage at a lower rate. That is the calculation that should drive a funding decision, not the headline rate alone.
Tell us about the project, the numbers, and the timeline. We will give you an honest read on whether we can fund it and what a suitable structure could look like. Email loans@bottomlinefinance.com.au or send the form.
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