Calculating the Total Cost of Different Financing Methods, Including Interest, Fees, Taxes, and Other Costs

To calculate the total cost of different financing methods, we need to consider multiple factors. I will list several common financing methods and explain how to calculate the total cost for each. Please note that specific figures may vary depending on the company’s situation, market conditions, and specific financial institutions. Below is a general calculation framework:

Bank Loans

Characteristics of the Vietnamese bank loan market: Relatively high interest rates, usually between 7-11%, depending on loan term and company credit. State-owned banks (e.g., Vietcombank, BIDV) and large private banks (e.g., Techcombank, VPBank) are the main sources of loans. Strict collateral requirements, typically requiring 130-150% collateral ratio.

Detailed cost analysis (using a 5-year loan of 230 billion VND as an example):

• Interest cost: Assume an annual interest rate of 8%; Equal principal and interest repayment method; Monthly repayment: approximately 468 million VND, Total interest: approximately 5.08 billion VND.
• Fees: One-time processing fee: 230 billion × 0.5% = 1.15 billion VND. Annual management fee: 23 million VND/year × 5 years = 115 million VND.
• Appraisal fees: Real estate appraisal: 50 million VND. Enterprise value assessment: 70 million VND.
• Insurance premiums: Collateral insurance: 230 billion × 0.2% × 5 years = 230 million VND. Credit insurance (optional): 230 billion × 1.5% = 345 million VND.
• Collateral-related costs: Collateral registration fee: 30 million VND. Notary fee: 20 million VND.

Total cost: 5.08 billion + 1.15 billion + 115 million + 50 million + 70 million + 230 million + 345 million + 30 million + 20 million = 6.055 billion VND.

Tax savings (20% corporate income tax rate): 5.08 billion × 20% = 1.016 billion VND.

Net financing cost: 6.055 billion – 1.016 billion = 5.039 billion VND.

Effective annual cost rate: approximately 8.76%.

Bond Issuance

Characteristics of the Vietnamese bond market: Corporate bond market still developing, mainly for large enterprises. Interest rates usually 1-2 percentage points higher than bank loans. Minimum issuance size typically 100 billion VND.

Detailed cost analysis (using a 5-year bond of 1,150 billion VND as an example):

• Interest expense: Assume an annual interest rate of 9%； Annual interest: 1,150 billion × 9% = 103.5 billion VND； Total interest for 5 years: 103.5 billion × 5 = 517.5 billion VND.
• Underwriting fee， Underwriting fee rate 2.5%: 1,150 billion × 2.5% = 28.75 billion VND.
• Legal fees, International law firm: 1.8 billion VND; Local law firm: 700 million VND.
• Credit rating fees: Initial rating: 1.3 billion VND; Annual maintenance (4 years): 500 million × 4 = 2 billion VND.
• Registration and custody fees; Initial registration: 500 million VND； Annual custody (0.02%): 1,150 billion × 0.02% × 5 = 115 million VND。
• Roadshow and marketing， Domestic roadshow: 800 million VND； Marketing materials: 300 million VND.
• Accountant fees, Audit report: 700 million VND; Due diligence: 400 million VND.
• Printing and issuance: 300 million VND.

Total cost: 517.5 billion + 28.75 billion + 2.5 billion + 3.3 billion + 615 million + 1.1 billion + 1.1 billion + 300 million = 63.54 billion VND.

Tax savings: 517.5 billion × 20% = 103.5 billion VND.

Net financing cost: 63.54 billion – 103.5 billion = 53.19 billion VND.

Effective annual cost rate: approximately 9.25%.

Equity Financing

Characteristics of the Vietnamese equity financing market: Active private equity market with high foreign investor participation. IPO market still developing but gradually maturing. Investors prefer high-growth industries such as technology, consumer goods, fintech.

Detailed cost analysis (using 460 billion VND financing, giving up 20% equity as an example):

• Financial advisor fee, 6% fee rate: 460 billion × 6% = 27.6 billion VND.
• Legal fees, Transaction document preparation: 800 million VND; Due diligence: 500 million VND.
• Audit and financial due diligence, Audit report: 700 million VND; Financial due diligence: 400 million VND.
• Valuation services, Independent valuation report: 600 million VND.
• Roadshow and marketing, Investor presentations: 500 million VND; Marketing materials: 300 million VND.
• Other fees, Government approval and registration: 200 million VND; Due diligence travel: 150 million VND.

Total direct costs: 27.6 billion + 1.3 billion + 1.1 billion + 600 million + 800 million + 350 million = 6.91 billion VND.

Indirect costs:

• Equity dilution: 460 billion VND (current value).
• Future potential dividends (assuming annual net profit of 10 billion, 50% payout ratio): Annual dividend cost = 10 billion × 50% × 20% = 1 billion VND.

Leasing Finance

Characteristics of the Vietnamese leasing market: Market still developing, mainly dominated by bank-affiliated leasing companies. Interest rates usually 1-2 percentage points higher than bank loans. Suitable for financing tangible assets such as equipment, machinery, vehicles.

Detailed cost analysis (using 230 billion VND equipment, 5-year lease as an example):

• Lease payments: Assume annual leasing rate of 10%; Monthly lease payment: approximately 488 million VND. Total lease payments: 488 million × 60 months = 29.28 billion VND.
• Down payment,15% down payment: 230 billion × 15% = 34.5 billion VND.
• Processing fee,1.5% processing fee: 230 billion × 1.5% = 3.45 billion VND.
• Insurance premium, Annual insurance rate 0.8%: 230 billion × 0.8% × 5 years = 920 million VND.
• Maintenance costs, Annual maintenance fee: 230 million × 5 years = 1.15 billion VND.

Total cost: 29.28 billion + 34.5 billion + 3.45 billion + 920 million + 1.15 billion = 35.145 billion VND.

Tax savings (assuming operating lease): 35.145 billion × 20% = 7.029 billion VND.

Net financing cost: 35.145 billion – 7.029 billion = 28.116 billion VND.

Effective annual cost rate: approximately 10.8%.

Comprehensive Recommendations:

For companies with good credit and sufficient collateral, bank loans remain the most cost-effective option. Large enterprises should consider issuing bonds. Although initial costs are higher, they can obtain larger-scale and longer-term financing.

High-growth companies, especially in technology and consumer sectors, may consider equity financing. Despite equity dilution, they can gain support from strategic investors.

Leasing finance is suitable for companies needing large equipment, especially SMEs with tight cash flow.

It is recommended to adopt a mixed financing strategy based on company size and industry characteristics: Large enterprises: Bank loans (50%) + Bond issuance (30%) + Equity financing (20%). Medium-sized enterprises: Bank loans (60%) + Leasing finance (25%) + Equity financing (15%). Small enterprises: Bank loans (70%) + Leasing finance (20%) + Small-scale equity financing (10%).

Utilize government preferential policies, such as low-interest loans or guarantee schemes for specific industries. Foreign-invested enterprises can consider using parent company guarantees to obtain more favorable financing terms. Regularly review the financing structure and adjust the financing portfolio based on market interest rate changes and company development stages.

It is recommended to calculate the costs and benefits of various financing options in detail based on the company’s specific financial situation, industry characteristics, and development strategy to select the optimal plan.