Blended cost of capital calculator: UK SMBs running 2 to 3 facilities
Most UK SMBs above £500,000 turnover run two or three concurrent debt facilities. The headline rate of any one facility hides the all-in cost. Blended cost weights each facility by principal and produces a single number: above 25 percent flags refinance; above 35 percent makes refinance the highest-leverage management move available.
What this calculates
Blended cost of capital is the weighted-average cost of every committed debt facility, weighted by current principal balance. It is the single number that captures what the debt stack is costing the business per unit of capital. Every facility contributes proportionate to its size: a £200,000 term loan at 9 percent contributes more weight than a £30,000 MCA at 70 percent, even though the MCA is the higher-cost facility per unit. The blended view tells you whether the stack is well-priced overall and which facility is the highest-leverage refinance target.
The maths in plain English
Step 1: itemise the stack. List every committed debt facility currently outstanding. Term loans, asset finance, invoice finance, MCA, commercial mortgages, overdraft drawn balances. Note the current principal balance on each (not the original advance).
Step 2: convert each facility to an APR. Term loans publish APR. Asset finance publishes APR (calculate from monthly cost and term if not). MCA needs factor-to-APR conversion (see the effective APR converter). Invoice finance publishes a service fee plus discount margin which can be expressed as APR on average drawn balance.
Step 3: weight each facility. For each facility, multiply current principal balance by APR. The result is the weighted cost contribution.
Step 4: blend. Sum every weighted cost contribution. Divide by the sum of every current principal balance. The result is the blended cost of capital, expressed as an APR.
Worked example: term loan plus asset finance
Trading Ltd runs two facilities. A £180,000 outstanding term loan with Funding Circle at 11 percent APR. A £45,000 outstanding asset-finance contract on plant equipment at 8 percent APR.
Weighted contributions. Term loan: 180,000 times 11 percent equals £19,800. Asset finance: 45,000 times 8 percent equals £3,600. Total weighted cost: £23,400.
Total principal. 180,000 plus 45,000 equals £225,000.
Blended cost. 23,400 divided by 225,000 equals 10.4 percent.
Read. Blended cost of 10.4 percent is comfortably inside the typical UK SMB band. No urgent refinance signal. The asset-finance facility is well-priced. The term loan dominates the weighted view because it is four times the principal of the asset finance.
Worked example: term loan plus MCA plus asset finance
Trading Ltd runs three facilities. A £150,000 term loan at 12 percent APR. A £35,000 MCA balance with equivalent APR of 65 percent. A £40,000 asset-finance contract at 9 percent APR.
Weighted contributions. Term loan: 150,000 times 12 percent equals £18,000. MCA: 35,000 times 65 percent equals £22,750. Asset finance: 40,000 times 9 percent equals £3,600. Total weighted cost: £44,350.
Total principal. 150,000 plus 35,000 plus 40,000 equals £225,000.
Blended cost. 44,350 divided by 225,000 equals 19.7 percent.
Read. Blended cost of 19.7 percent is above the comfortable band. The MCA is contributing more weight than the term loan despite being a quarter the principal, because of the high equivalent APR. Refinancing the £35,000 MCA into the existing term-loan structure (or onto a new larger term loan that consolidates) would pull the blended view down sharply. A new £40,000 term-loan principal at 12 percent against the MCA would replace £22,750 of weighted cost with £4,800, dropping blended cost to roughly 11.4 percent.
Worked example: stacked MCAs
Trading Ltd runs three concurrent MCAs after stacking over 18 months. MCA #1: £25,000 balance, equivalent APR 55 percent. MCA #2: £18,000 balance, equivalent APR 70 percent. MCA #3: £15,000 balance, equivalent APR 80 percent. Plus a small £20,000 term loan at 14 percent APR.
Weighted contributions. MCA #1: 25,000 times 55 percent equals £13,750. MCA #2: 18,000 times 70 percent equals £12,600. MCA #3: 15,000 times 80 percent equals £12,000. Term loan: 20,000 times 14 percent equals £2,800. Total weighted cost: £41,150.
Total principal. 78,000.
Blended cost. 41,150 divided by 78,000 equals 52.8 percent.
Read. 52.8 percent blended is the band where the debt stack is materially threatening business viability. Specialist debt-consolidation routes ( Bizcap, JPM Capital, Bolton Finance) are designed for exactly this picture: replace stacked MCAs with a single amortising term loan at 18 to 26 percent APR. Blended cost drops by 25 to 35 percentage points overnight; monthly cashflow tightens initially because the term-loan term is longer than the MCA daily holdback would have allowed, but the absolute cost of capital falls dramatically.
When this number matters
Blended cost matters most at the inflection point where the debt stack has grown organically without a single conscious "stack design" decision. UK SMBs above £500,000 turnover often arrive at multi-facility structures by accumulating: a term loan at year 2, an MCA at year 3 to bridge a slow quarter, an asset-finance contract at year 4 to buy plant. By year 5 the blended cost is materially above what a single consolidated facility would price at, but no individual facility is obviously wrong.
The blended view is the trigger to commission a structured debt-stack review. Refinancing onto a single longer-term facility almost always reduces blended cost. The trade-off is the longer term of the consolidated facility (5 to 7 years versus the natural amortisation of the original stack); the strategic question is whether the reduced cost of capital justifies the longer commitment.
Edge cases
Invoice finance with revolving balance. Invoice finance does not have a fixed principal balance; the drawn balance moves with debtor book size. Use average drawn balance over the last 12 months as the weighting. Apply the all-in cost (service fee plus discount margin) as the APR.
Commercial mortgage. Commercial mortgage principal and APR feed into the blended view. The mortgage principal is normally large enough to dominate the weighted view; the rate is normally low enough that it pulls blended cost down. A commercial mortgage at 6.5 percent APR on £400,000 outstanding stabilises a blended view that would otherwise be dominated by smaller higher-cost facilities.
Overdraft drawn balance. Use the drawn balance times the agreed overdraft APR. The undrawn portion is not part of the blended cost; only what is genuinely committed and drawn.
Personal-finance facilities used in the business. A personal credit card or personal loan being used to fund business working capital is not formally a business facility but is a real cost. Include it in the blended view if it is materially funding business activity. Note the personal-liability implication separately.
Director PG cost. PGs do not have an APR but they do carry a real economic cost (PG insurance premiums of 1 to 4 percent of the PG amount per year, where insured). Most blended-cost calculations leave PG cost out as a separate line; include it if PG insurance is in place. See the PG explainer for more on the insurance economics.
FAQ
What is blended cost of capital?
The weighted-average cost of every committed debt facility, weighted by the principal balance of each. Blended cost reflects the all-in cost of debt to the business rather than the headline rate of any one facility. Most UK SMBs running multiple facilities have a blended cost meaningfully different from any individual headline rate.
Why does this matter more than a single APR?
Single-facility APR is what a lender publishes. Blended cost is what the business actually pays across the stack. A business with a 9 percent term loan, a 65 percent equivalent-APR MCA and a 12 percent asset finance contract has a blended cost that depends on the relative size of each. The blended view is what tells you whether to refinance and which facility to refinance first.
When is the blended cost dangerous?
Above 25 percent blended is the working threshold. UK SMBs with a 25 to 35 percent blended cost are paying too much for capital relative to typical UK SMB returns on capital. Above 35 percent blended, refinancing the most expensive facility becomes the highest-leverage management decision available.
How does an MCA distort the blended view?
MCA equivalent APR is high (30 to 90 percent), but the principal is normally small relative to the business stack and the term is short. A £30,000 MCA at 70 percent equivalent APR sitting alongside a £200,000 term loan at 9 percent produces a blended cost in the high teens. The MCA pulls the blended view up but does not dominate. Stacked MCAs (multiple MCAs running concurrently) are where the blended view starts pushing past 30 percent.
Should I weight by principal balance or by remaining cost?
Principal balance is the standard weighting. It reflects the current cost of capital. Some advisors use remaining-total-cost weighting (remaining principal plus remaining interest), which gives a forward-looking view. Both are useful; principal-weighted is the standard answer for the refinance decision.
Does an asset-finance contract have an APR for blending purposes?
Yes. Asset finance is normally quoted as a fixed monthly payment over a term. Convert to APR using the standard calculation: total cost as a percentage of the asset value, divided by the term, multiplied by 12, with an amortising-equivalent uplift of around 1.8 if the contract is fully amortising. Most UK asset-finance lenders publish APR alongside the monthly cost.
How do I include a director loan account?
A directors loan account is not commercial debt in the conventional sense, so it does not appear in the blended-cost calculation directly. The S455 corporation-tax cost of an overdrawn DLA is a separate cashflow line. See the directors-loan-account guide for the S455 implications and the routes to clear an overdrawn balance.
When should I commission a full debt-stack review?
Three triggers. First, blended cost above 25 percent. Second, more than three concurrent facilities. Third, monthly debt service consuming more than 40 percent of free cash flow. Any of these signals that the debt stack has grown organically into a structure that could be simplified and re-priced. A 30 to 60 minute structured review usually identifies the highest-leverage refinance move.
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Get matched now →Editorial review next steps
Once you have a blended-cost number, the next step depends on the band. Below 15 percent, no urgent action; check the 2026 rate guide at refinance windows. 15 to 25 percent, the highest-cost facility is worth refinancing; for term-loan refinance see Funding Circle and iwoca. 25 to 35 percent, run a full debt-stack review; asset-backed structures with Allica Bank and OakNorth often unlock material reductions. Above 35 percent, specialist consolidation routes apply; see Bizcap, JPM Capital and Bolton Finance. BestBusinessLoans is editorial; for matched-lender introductions use our /get-quotes/ form.
By Oliver Mackman, Director, Best Business Loans Ltd. Last reviewed 10 May 2026.