Marginal Cost Of Funds

See: Marginal Cost of Production. See: Marginal Cost of Capital. See: Weighted Average Cost of Capital.

In a typical funding situation where a company needs to raise a lot of capital, that dough will be laddered. That is, if a company wanted to raise, say, $80 million to build an array of next-gen cell tower phone signal boosters, The Brain Cancer 2000, the first $20 million of capital might be cheap.

Why? Well, if the company really does spend $80 million even just reasonably wisely and builds out all these towers, there are likely tons of buyers of them at a cheap price, even if they don't suddenly become the destination host for phone calls everywhere.

Like...why wouldn't AT&T or Crown Castle or another behemoth want them if they could get them cheap?

So that first $20 million, i.e. the most preferred or senior capital, might carry an 8% rate. Then the next $25 million is riskier. It's unclear that the lender would get that dough back. Then pick the last $35 million, and that capital is very risky; if the new system isn't widly adopted, it likely goes bust. So that last bit of capital, that last $35 million, might carry a very high rate, or cost of funds; call it 15%. The marginal cost of funds in this raise is 15%. If they need even more than $80 million, then yeah, the cost might go up even further.

No arms, legs, or lungs allowed in the payment of any of these.