The cost of debt is the effective interest rate a company pays on all its interest-bearing obligations: bank loans, bonds, finance leases and shareholder loans. It feeds into the WACC after the tax shield effect: after-tax cost of debt = rate × (1 - effective tax rate). Its level reflects the borrower's credit risk, loan duration and market conditions. In Switzerland, the deductibility of interest is subject to thin capitalisation rules (safe harbour ratios published by the FTA) which may limit the effective tax shield in highly leveraged structures.

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Example: a Swiss SME has a CHF 6.0 million bank loan at 4.2% and a CHF 1.5 million finance lease at 3.8%. The weighted average pre-tax cost of debt is 4.1%. With an effective tax rate of 14%, the after-tax cost of debt integrated in the WACC is 3.5% — contributing 1.2% to the overall WACC at 35% debt weight.

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Hectelion determines the cost of debt with precision, distinguishing financing sources and incorporating applicable tax shields by jurisdiction.