SME Build-Up Cost of Capital Calculator
What is the true cost of equity hurdle rate for an unlisted SME when public market beta cannot be observed?
Financial Inputs
Yield on 10-year Indian Government Securities (G-Sec benchmark).
Long-term equity premium demanded over sovereign bonds for listed equities (Nifty/Sensex average).
Empirical return premium required by investors for holding small/micro-cap private companies.
Sector volatility premium relative to broad market indices.
Risk weighting if top 3 clients represent >40% of total company turnover.
Risk premium for promoter dependency and absence of second-line professional management.
Adjustment for financial gearing leverage and unvetted MIS / internal financial controls.
Total SME Cost of Equity (Ke)
Under the SME Build-Up Method, your unlisted enterprise cost of equity is sized at 22.6%.
Total Company-Specific Risk (CSRP)
4%
Base Public Equity Hurdle (Rf + ERP)
14.1%
Key Financial Takeaways
- Under the SME Build-Up Method, your unlisted enterprise cost of equity is sized at 22.6%.
- Component breakdown: Sovereign G-Sec Rf (7.1%), Equity Risk Premium (7%), SME Micro-Cap Size Premium (3.5%), and Industry Risk (1%).
- Company-Specific Risk Premium (CSRP) adds 4% (Customer concentration: 1.5%, Key-person dependency: 1.5%, Governance: 1%).
Frequently Asked Questions
Why cannot unlisted SMEs use the CAPM formula directly?
Capital Asset Pricing Model (CAPM) requires historical stock price regression against index returns to calculate Beta (β). Because private unlisted SMEs have no traded stock market price history, the Build-Up Method is mandated by institutional appraisers and IBBI Registered Valuers.
How can an SME reduce its Build-Up Cost of Capital?
Promoters can systematically lower their discount hurdle (and thereby boost DCF valuation) by diversifying revenue across multiple clients, hiring capable professional CxOs to mitigate key-person dependency, and adopting statutory audited MIS systems.
Calculators on this platform provide indicative mathematical estimations based on industry-standard financial appraisal models (including Tandon Committee Method II, Nayak Turnover Method, and standard compound amortisation).
They do not constitute a formal facility sanction, credit commitment, or legal advisory from SME PAISA or any partner banking/NBFC institution. Final terms, interest margins, security stipulations, and credit sanctions remain strictly subject to formal credit appraisal, audited balance sheet verification, CMA Data assessment, and risk committee approval by institutional lenders.
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