The interest rate is maybe two-thirds of what you'll actually pay. Build the all-in model before you sign: every fee line, the floor, the day-count convention, the unused fee on capital you can't draw yet, two sets of lawyers, and the annual diligence you'll fund forever. A facility with a 12% sticker routinely runs 15–16% all-in in year one — and on a lending book, 300bps can be the margin.
All numbers illustrative.
Most founders negotiate the interest rate and think they're done. Then the first year's invoices arrive.
Let's build the real model, line by line, on a sample facility: $20M committed, SOFR + 9% with a 3% SOFR floor, 85% advance rate. Assume SOFR sits at 4%, so you're accruing at 13% nominal. Assume you draw $8M at close and ramp to fully drawn over 12 months — average drawn balance for the year, say $13M.
The stack
1. Interest, corrected. 13% nominal — but on an actual/360 day count, which charges you 365 days of daily interest computed on a 360-day year. Effective: ~13.18%. On $13M average drawn: ~$1.71M.
2. Structuring fee. 1% of the $20M commitment, at close, drawn or not: $200k. (And again on each future tranche — file that away for the upsize.)
3. Unused fee. 0.5% annually on committed-but-undrawn. Your average undrawn balance during the ramp year is $7M: $35k. Sounds small. Now re-run it for the version of you that took a $40M facility to get the bigger press release and spent the year with $27M undrawn: $135k, for nothing. This fee is why Part 7 exists.
4. Draw fees. 0.5% per draw on, say, $14M of cumulative draws this year: $70k. (At the 2%-per-draw end of the market, this line alone is $280k — per-draw fees on a recycling facility are a tax on your own growth. Model your actual draw cadence.)
5. Agent/admin fees. Say $10k/quarter: $40k/year, balance-irrelevant.
6. Legal — both sides. Your counsel for a first institutional facility: commonly $150–300k by close. The lender's counsel: also yours to pay, frequently uncapped, commonly similar. Call it $400k all-in at close if things go smoothly. (If you capped lender legal in the sheet like Part 4 told you to, enjoy the difference :))
7. Diligence, initial. Background checks, loan-file audit, compliance review, on-site visit — the lender's costs, passed through: $50–100k pre-close. Note that much of this is incurred before closing, i.e., some of it you pay even if the deal dies.
8. Diligence, forever. Annual (sometimes semiannual) loan audits, compliance reviews, field exams — at your expense, at a cadence the documents often leave to the lender's discretion: budget $50–75k/year.
9. The supporting cast. Backup servicer retainer (say $30–60k/year), verification agent, independent director (a few grand), audited financials if you didn't already produce them (real money — $50k+ — and now contractually required). Call it $100k/year combined.
10. Reserve drag and idle cash. If a reserve account traps 3% of outstandings, that's ~$400k of your cash at full deployment earning roughly nothing. Not a fee, but a cost of capital — count the opportunity cost.
The verdict
Year-one cash cost on our sample facility: interest ~$1.71M + fees and costs ~$895k ≈ $2.6M against $13M average drawn — right around 20% in year one, against a 12-point spread you thought you negotiated. Steady-state (setup costs amortized, fully drawn) it settles toward 14.5–15.5% all-in vs the 13% nominal. Your true cost of capital is the sticker plus 150–300bps, forever, plus a fat one-time setup layer — and that's the well-negotiated version.
Skip the spreadsheet — model your facility's all-in cost, fee by fee, at your own draw curve.
Three practical rules fall out of this:
Build the spreadsheet before you sign anything. Committed amount, honest draw curve, every fee line from the sheet, both legal bills, the recurring diligence, the reserve drag. Appendix E is the line-item checklist. Compare competing sheets on this number — all-in cost at your realistic deployment — never on spread. Sheets that look 200bps apart on the header routinely swap rankings on the all-in.
Normalize per dollar deployed. A cheap-looking facility you can only half-use is an expensive facility. Divide total annual cost by expected average drawn balance. That's the only number that goes in your unit economics.
Treat cost-of-capital reduction as a product line. That spread between sticker and true cost comes straight out of your margin — and on a lending book, 300bps can be the margin. As you scale, driving all-in cost down — refinancing, renegotiating floors, graduating to senior/junior structures, eventually securitizing — is one of the main levers of positive unit economics, same tier as credit and growth. It's a core function, not a back-office chore.
And one rule from the other side of the table: your lender has run this exact model on you, to the basis point. They know their all-in yield under every draw scenario. If only one side of a negotiation knows the true price, guess which side pays it.