A private company has no traded bonds and no credit rating. How do you estimate its cost of debt?

Options, in rough order of preference

• Use the rate on its most recent actual borrowings if they are current-market (a recent bank facility or note).
• Build a SYNTHETIC rating: compute credit metrics - most commonly interest coverage (EBIT / interest expense), plus leverage ratios - map them to a rating using published tables (e.g., Damodaran's coverage-to-rating tables), then set Kd = risk-free rate + the default spread for that rating.
• Benchmark to yields on debt of comparable rated companies of similar size and sector, noting small private borrowers typically pay a premium over large-cap spreads. Whichever route, use a current forward-looking rate and tax-affect it at the marginal rate.