Gerber Finance

finance calculator
The True Cost of Borrowing

So often, entrepreneurs and their advisors look only at the interest rate to determine the cost of borrowing. What they really should be looking at is the benefit to the company of that borrowing.

In making comparisons between lenders, if ALL ELSE is identical, then of course choose the lender offering the lower rate. But, if you have a line of credit from a bank, you may be able to get a higher return by replacing or supplementing the bank line with a line from another lender, even at higher rates. To test the impact, we have devised the calculator below. Fill in the yellow boxes to see how the additional resources can make an impact.

PLEASE NOTE – THIS CALCULATOR IS FOR ILLUSTRATION PURPOSES ONLY AND TO MAKE A MEANINGFUL COMPARISON, ASSUMES 100% UTLIZATION OF RESOURCES 100% OF THE TIME.

Own funds (capital) in the business plus any trade payable and other available credit

Bank Funding

Bank Interest Rate

Gross Margin Percentage

Annual Overhead

Trade Cycle in days *

Estimated Net Profit

* - how many days from paying your supplier until you get paid for the sale.

It’s really very simple. With existing funding, total resources are
With a trade cycle of		days
Funds can be turned		times per year
At a gross of
Sales of		could be generated
Gross Profit would be
Less Expenses of
And less interest of
Net profit will be

Now, assume a lender either replaces the bank with a bigger line or provides a supplemental line to the bank

Banks Fund		and supplemental funds of
Supplemental lenders rate
Estimated New Net Profit

Under the new funding arrangement, additional availibility is
On the same trade cycle the additional funds can be turned		times per year
Which could result in additional sales of
Which translates into gross profit of
Assumimg the same expense base the only additional cost is extra interest of
Yielding additional net profit of

For a new total net profit of