Cost of Debt Benchmarks by Industry 2026

Understanding the cost of debt is critical for businesses looking to finance growth in 2026. Here's a quick breakdown of key insights:

• Average Costs Across U.S. Markets: Pre-tax cost of debt averages 5.29%, dropping to 3.97% after tax.
• Industry Variations: Borrowing costs vary widely:
  • Healthcare: 5.29%–16%, with hospitals enjoying lower rates due to tangible assets and steady revenue.
  • SaaS: 7%–20%, with early-stage companies facing higher rates due to intangible assets and revenue volatility.
  • Legal Tech: 9%–14%, influenced by client concentration and AI-related risks.
  • Renewable Energy: 6%–14%, depending on project stage and offtake agreements.
• Key Drivers: Factors like asset type, revenue stability, and leverage ratios significantly impact borrowing rates.
• Opportunities: Refinancing may lower costs for businesses that secured debt during higher-rate periods in 2022–2023.

Quick Comparison

For businesses, evaluating your industry’s benchmarks and aligning your financing strategy can save costs and improve financial health.

Estimating The Cost Of Debt For WACC - DCF Model Insights

Key Drivers of Industry Cost of Debt

Borrowing costs are determined by a straightforward formula: a base rate plus a credit spread. The base rate - often SOFR or the Prime rate in 2026 - acts as the foundation, while the credit spread reflects the borrower's risk profile. By early 2026, SOFR has stabilized after the aggressive rate-tightening period of 2022–2024 ^[3]. This means the spread now plays a larger role in determining borrowing costs, which range from about 6% to 14%.

Collateral is a major factor in setting the credit spread. Industries with tangible assets, like renewable energy infrastructure or healthcare, can offer physical equipment or real estate as collateral, reducing lender risk. On the other hand, companies in fields like SaaS or legal tech primarily have intangible assets, such as proprietary code or contracts. These are harder for traditional banks to value, often leading such companies to seek financing from private debt funds ^[2].

Another critical factor is revenue predictability. Lenders assess cash flow stability: steady, contracted revenue lowers spreads, while more volatile or growth-dependent revenue increases them. For instance, a utility-scale solar project with a 20-year power purchase agreement carries far less risk than a high-growth SaaS startup with concentrated revenue streams. In 2026, this gap has widened for software companies, as lenders now add an uncertainty premium tied to AI. Adrian Lowery, Managing Director at VRC, noted:

"Under current risk-off conditions tied to AI-related uncertainty, lenders expect most software issuers to price at an additional premium of roughly 75 basis points." ^[8]

Leverage ratios and debt service capacity also play a key role. By 2026, most lenders require a minimum Debt Service Coverage Ratio (DSCR) of 1.25x to approve a loan ^[2]. Companies with a DSCR of 1.5x or higher have stronger negotiating power due to their healthier cash flow. Regulatory exposure is another consideration; for example, healthcare companies often face significant compliance costs, which can lead to higher spreads.

Here’s how these factors compare across industries:

(Source: NYU Stern/Damodaran ^[1])

1. Healthcare Cost of Debt Benchmarks

Borrowing costs in the healthcare sector vary based on sub-sector risk, asset type, and other financial factors. As of January 2026, public hospitals and healthcare facilities face a pre-tax cost of debt of 5.29% (3.97% after tax). Meanwhile, biotech and pharmaceutical companies see slightly higher costs at 6.02% pre-tax and 4.51% after tax ^[1]. Smaller, privately held practices encounter a broader range, with borrowing costs between 7% and 16%, depending on their lender, loan terms, and financial stability ^[2].

Sub-Sector Risk and Borrowing Costs

The healthcare sector's borrowing costs are heavily influenced by sub-sector risk. For instance, hospitals and large health systems enjoy lower costs due to their tangible assets and steady patient volumes, which contribute to a weighted average cost of capital (WACC) of 6.19%. On the other hand, healthcare IT companies, which rely on intangible assets and growth-based revenue, face a higher WACC of 8.22% ^[1].

Source: Damodaran Online (NYU Stern), January 2026 ^[1]

Factors Shaping Risk Perception

Beyond the type of assets a healthcare entity holds, factors like reimbursement timing and payer mix also play a critical role in borrowing risks. Lenders closely examine how much revenue comes from Medicare, Medicaid, or private insurers and the time it takes to collect payments. A shift toward lower-reimbursing payers can increase perceived risk and lead to higher borrowing spreads, even if patient volumes remain steady ^[5].

Debt Instruments in Healthcare

In 2025, large non-profit health systems leaned heavily on municipal bonds, issuing approximately $50 billion, reflecting a 34% increase from 2024 ^[10]. Variable-rate debt also gained popularity, with $14 billion issued in 2025, as borrowers seized opportunities created by 175 basis points in Federal Reserve rate cuts ^[10]. For smaller practices, SBA 7(a) loans continue to be a go-to option, offering a variable rate floor of 7.5% as of 2026 ^[2].

"The challenge... has shifted from capital availability to capital selectivity." - Kaufman Hall ^[10]

Real-World Example: Refinancing to Reduce Costs

Consider a physical therapy practice with $1.1 million in annual revenue that refinanced $380,000 in equipment debt in 2026. The original loans carried interest rates ranging from 12% to 22%. By consolidating into a single SBA-backed term loan at 9.25%, the practice reduced its annual debt service by more than $28,000, cutting effective borrowing costs by over 500 basis points ^[2]. This example highlights the potential savings for healthcare businesses burdened by high-interest equipment financing, making refinancing a worthwhile strategy to evaluate before upcoming renewal cycles.

2. SaaS and Cloud Software Cost of Debt Benchmarks

The SaaS industry has carved out a distinct niche in debt markets. Unlike sectors like healthcare, which often rely on tangible assets and predictable reimbursements, SaaS companies leverage their recurring revenue streams to secure financing. This unique approach directly impacts their borrowing rates and the types of financing available to them.

In 2026, pre-tax debt costs for SaaS businesses typically fall between 7% and 15% ^[3][4]. Breaking it down further:

• Large enterprises ($100M+ ARR) usually secure rates between 10.5% and 12.5%.
• Mid-market firms ($20M–$50M ARR) face rates ranging from 13.5% to 15.5%.
• Early-stage companies (ARR below $30M) often encounter higher rates, typically between 15% and 20%, especially from specialty lenders ^[13].

For profitable companies, the tax advantage can reduce the effective cost of debt. For example, a 10% pre-tax rate may translate to about 7% after-tax for businesses with a 30% tax rate ^[4].

Real-World Examples from 2025

Recent deals highlight these trends. In January 2025, Boomi, an iPaaS leader with estimated revenues over $500M, secured a $212.1M loan from Blue Owl at 11.56%, set to mature in 2029. Meanwhile, Pinecone, a smaller player in the vector database space with approximately $30M in revenue, raised $35M from Hercules Capital at 13.00% ^[13]. These examples emphasize how performance metrics directly influence debt pricing in the SaaS sector.

Key Metrics and Lender Priorities

The most critical metric for underwriting SaaS debt is Net Revenue Retention (NRR). This figure serves as a comprehensive indicator of customer loyalty, product value, and competitive strength. Companies with NRR above 90% often enjoy 200 to 300 basis points lower yields compared to those with NRR below 85% ^[11].

In 2026, lenders are also placing significant weight on AI-defensibility. They are increasingly evaluating whether a company’s customer relationships and market position are at risk of disruption from AI-native competitors. Companies unable to demonstrate resilience in this area are seeing higher risk premiums ^[3].

"Net revenue retention is the single most important metric in the sector. It captures customer satisfaction, product-market fit, pricing power, and competitive positioning in a single number." - Lisa Rafter, Publisher, ABF Journal ^[11]

Debt Instruments in the SaaS Sector

The types of debt instruments available to SaaS companies have evolved. Unitranche financing now dominates the $25M–$100M range, accounting for 65% to 70% of software debt deals. This structure offers a simplified solution with blended yields of 9% to 12%, eliminating the need for multi-lender syndications ^[11].

For smaller companies, revenue-based financing (RBF) remains an option. These deals typically have a repayment cap of 1.2x to 1.5x, but their effective costs are among the highest in the market. On the other hand, strong, profitable companies can still access bank term loans at rates as low as SOFR + 275 to 325 basis points, bringing total costs below 7% ^[12].

Companies that secured debt during 2022–2023 at higher rates (e.g., SOFR + 550 basis points or more) should consider refinancing. Current bank pricing for strong credits has become much more favorable ^[12].

Summary Table: SaaS Debt Benchmarks

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3. Legal Tech Cost of Debt Benchmarks

Legal tech combines the recurring revenue model of SaaS with the complexities of professional services, which directly impacts how debt is priced in 2026.

For legal tech firms, the pre-tax cost of debt typically falls between 9% and 14%, depending on factors like company size and credit quality ^[4]. Bank-led venture debt tends to range from Prime + 1% to 4% (equating to 7%–11% overall), while fund-led deals are priced higher, at around Prime + 5% to 9% (9%–14% overall) ^[4]. Tax advantages can also come into play; for example, a 10% pre-tax rate could drop to roughly 7.5% after taxes for firms with a 25% marginal tax rate ^[2]. These pricing variations stem from challenges tied to collateral and market concentration, which are explored below.

What Drives the Risk Premium

Higher borrowing costs in legal tech compared to broader software markets can be traced to two main factors.

1. Legal tech firms often rely on intangible assets like intellectual property and recurring revenue contracts, which lenders perceive as riskier.
2. Market concentration is another red flag - if one client contributes more than 30% of a firm's ARR, it signals heightened credit risk ^[6].

Additionally, lenders are paying close attention to how well legal tech products can handle AI-driven re-pricing pressures ^[3]. Similar to other SaaS markets, legal tech faces scrutiny over how AI might disrupt pricing models.

"Lenders are more selective on SaaS companies which do not 'own' their customers due to the AI-replacement fears and AI-related re-pricing concerns." - Venture Debt Hub ^[3]

A real-world example: In January 2025, Relativity secured a $220M loan from Blue Owl at a 10.81% interest rate, with a maturity date in 2028 ^[13]. Meanwhile, smaller firms with ARR between $20M and $50M typically face higher rates, around 13.5% to 15.5%, when borrowing from private credit funds ^[13].

Debt Instruments Used in Legal Tech

Legal tech companies often rely on financing options like venture term loans, MRR-based lines of credit, and revenue-based financing (RBF). Each option comes with its own set of terms and costs:

• Venture term loans are sized at 30%–50% of ARR and often include interest-only periods lasting 6 to 24 months.
• Revenue-based financing (RBF), while flexible, carries repayment caps of 1.2×–1.5×, making it one of the pricier choices ^[3].
• Founders need to be cautious about clauses like "Material Adverse Change" (MAC) and strict minimum cash covenants, which can lead to technical defaults during routine market shifts ^[7].

Here’s a breakdown of the most common debt instruments:

Each option has its pros and cons, so founders must weigh the trade-offs carefully before committing to a financing structure.

4. Renewable Energy and Climate Tech Cost of Debt Benchmarks

Renewable energy, much like healthcare and legal tech, has its own set of debt cost benchmarks influenced heavily by the specifics of each project.

In this sector, debt costs can vary widely depending on the stage of the project. By 2026, fully contracted utility-scale solar and wind projects are expected to secure term debt with spreads ranging from SOFR + 150 to 350 bps. However, early-stage or merchant projects face much higher spreads, typically between SOFR + 600 to 1,100 bps ^[9][14]. For climate tech startups utilizing venture debt, total pricing usually falls between 7% and 14% ^[3]. Factoring in a 21% tax rate, a 10% pre-tax cost translates to about 7.9%.

What's Driving the Risk Premium

In 2026, underwriting will be heavily influenced by OBBB and FEOC regulations, which have led lenders to categorize projects based on their FEOC compliance. Legacy projects using pre-2025 equipment are generally offered better terms, while those starting in 2026 face more stringent due diligence and higher spreads ^[15].

"FEOC compliance is going to be the dominant concern in debt markets. Without clear guidance... we're seeing the market segment projects into three distinct categories that lenders are treating very differently." - Jim Alderson-Smith, Managing Director, Industry Coverage, Crux ^[15]

Lenders are also shifting their focus toward projects with strong near-term cash flow potential. Projects backed by solid offtake agreements, especially those tied to high-demand sectors like data centers, are receiving quicker approvals and lower spreads. For example, Google’s acquisition of Intersect Power for $4.75 billion in December 2025 to secure electricity supply illustrates the growing importance of such agreements ^[16].

These factors directly shape the pricing and structure of debt instruments in the renewable energy space.

Debt Instruments in Renewable Energy

The capital stack in renewable energy is intricate, with bridge loans leading the growth segment. Committed bridge loans (TCBRs) are priced at SOFR + 150 to 225 bps, while uncommitted structures come with spreads of SOFR + 500 to 1,000 bps ^[9][14]. In 2025, bridge loan volume hit approximately $25 billion, marking an 8.9% year-over-year increase ^[14].

Developers with robust balance sheets are better positioned to secure lower spreads and more favorable terms, while those with weaker financials face stricter covenants and higher borrowing costs.

Industry Comparison Table

Industries show a wide range of risk and return profiles. For instance, publicly traded companies in healthcare and legal tech often secure pre-tax cost of debt rates around 5.07%–5.29% ^[1], while growth-stage firms in these fields may face rates two to three times higher. Meanwhile, renewable energy companies report a debt-to-capital ratio of about 53% ^[1], in contrast to SaaS companies, which typically maintain much lower market debt-to-capital ratios, ranging from 2%–5.28% ^[17]. This reflects SaaS companies' reliance on financing tied to annual recurring revenue (ARR).

Here’s a summary of these benchmarks:

Emerging Patterns Across Sectors

Several trends stand out when comparing these industries:

• Public vs. private financing gap: Publicly traded healthcare and energy companies often borrow at lower rates (5%–6%), while growth-stage firms in these sectors typically face much higher rates, ranging from 10%–16% ^[1][2].
• Asset intensity and leverage differences: Renewable energy companies, supported by tangible assets and contracted cash flows, can sustain higher leverage levels. In contrast, SaaS firms, whose primary asset is software code, tend to have less collateral and lower leverage ratios.
• Divergent risk factors: Risk drivers vary significantly by sector. In healthcare, reimbursement pressures and payer mix dominate, while SaaS companies focus on churn rates, NRR, and the potential impact of AI disruption ^[5][3].

Real-World Examples

Growth-stage companies can use these benchmarks to negotiate better financing terms. For instance:

• In January 2025, Relativity (Legal Tech) secured a $220 million loan with a 10.81% interest rate ^[13].
• In August 2025, Vesta Healthcare closed a $25 million loan at 13.50% ^[13].
• In February 2025, Arctic Wolf (a security operations SaaS company) raised $185.4 million at 11.31% ^[13].

These examples highlight how growth-stage companies can align their financing strategies with industry norms to optimize capital structures and secure competitive terms.

Conclusion

Debt costs for companies vary significantly depending on their growth stage and industry. For instance, while a publicly traded utility might secure debt at rates between 5% and 9%, a growth-stage SaaS company with $5M ARR often faces borrowing costs in the 15%–20% range ^[2][13]. This disparity isn’t random - it stems from differences in collateral, cash flow predictability, and lender trust.

The good news? Debt costs aren’t locked in stone. SaaS companies that borrowed at SOFR + 550 in 2022–2023 can now refinance at SOFR + 300, potentially saving up to $1M annually on a $30M loan ^[12]. As Rocky Gor of CAPX explains:

"If your company raised debt in 2022 or 2023 at SOFR + 550 or higher, and you have performed well since then, you are likely leaving significant money on the table." ^[12]

Key metrics like Net Revenue Retention above 100%, gross margins over 70%, and a DSCR of at least 1.5x are critical for negotiating better rates ^[2][12]. Companies meeting these benchmarks often secure lower borrowing costs, while those falling short may see their premiums compound over time. This highlights how proactive financial management can directly impact debt expenses.

If you're unsure how your capital structure stacks up, consider enlisting a fractional CFO. They can help identify gaps, benchmark financing costs, and develop strategies to align your debt with your growth goals. Phoenix Strategy Group specializes in guiding growth-stage companies through these complex decisions.

FAQs

How do I estimate my company’s credit spread over SOFR or Prime?

To figure out your credit spread over SOFR (Secured Overnight Financing Rate) or Prime, start by identifying the type of lender you're dealing with and assessing your risk profile. Key factors to consider include revenue predictability, growth rate, and margins.

Here’s a general breakdown:

• Bank loans typically fall in the range of Prime + 0.5% to 2.0%.
• Non-bank venture debt tends to have higher rates, often ranging from 5.0% to 10.0%.

Keep in mind that sector-specific risks can impact your spread. For instance, industries like software, known for their volatility, might face an additional 75 basis points.

To ensure accuracy, always confirm reference rates using the Federal Reserve dashboard.

What metrics matter most for lowering debt costs in SaaS and legal tech?

If you're looking to cut down debt costs in SaaS or legal tech, the key lies in highlighting metrics that demonstrate predictable cash flow and low default risk. Here's what you should focus on:

• Cash runway: Ensure you have at least 12 months of cash runway. This signals financial stability to lenders.
• Recent equity round: A recent institutional equity round can boost confidence in your business's financial health.
• Strong unit economics: Metrics like an LTV:CAC ratio above 3:1 are crucial. They show you're acquiring customers efficiently and generating long-term value.

For SaaS companies specifically, these additional metrics can make a big difference:

• High ARR growth: Consistent growth in annual recurring revenue (ARR) reassures lenders of your business's scalability.
• NRR over 100%: A net revenue retention rate above 100% indicates you're retaining customers and upselling effectively.
• Low churn: Keeping churn rates low demonstrates customer satisfaction and loyalty.
• Debt-to-ARR ratio: Maintain total debt between 0.5x and 1.0x ARR to avoid over-leveraging.

By prioritizing these metrics, you can present your business as a low-risk investment, ultimately reducing debt costs.

When does refinancing debt from 2022–2023 make financial sense?

Refinancing debt from 2022–2023 could make sense if your loan's total rate is above 9%, you have at least 18–24 months remaining on the term, and your business has performed as well as or better than expected since the loan was issued. With current market conditions offering narrower credit spreads and lower base rates, you might save 200–400 basis points. However, it's essential to carefully assess the breakeven point, taking into account any prepayment penalties and associated fees. For guidance, Phoenix Strategy Group offers expertise in optimizing debt strategies.

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