Micro, Small, and Medium Enterprises (MSMEs) play a vital role in India's economic development, contributing significantly to GDP, employment, and exports. However, they face persistent challenges in securing low-cost financing and managing financial risks effectively. This study explores the factors affecting the cost of capital in Indian MSMEs and evaluates their risk assessment practices. Using both primary and secondary data, the research applies financial models such as the Weighted Average Cost of Capital (WACC) and risk analysis tools to assess how capital structure, firm size, credit history, and government schemes influence financing costs. The findings indicate that smaller firms with limited access to formal credit and inadequate financial documentation bear higher capital costs and greater exposure to risk. The study highlights the need for strategic interventions—such as improved financial literacy, simplified credit processes, and digital financial integration—to enhance capital efficiency and reduce risk. The findings reveal that micro and small enterprises often incur higher financing costs due to their dependence on informal funding, limited credit history, and lack of structured financial practices. Furthermore, risk management among MSMEs is primarily informal, with limited use of analytical tools or insurance mechanisms. The study underscores the need for policy reforms, digital integration, and targeted financial literacy initiatives to improve access to affordable finance and enhance risk resilience across the MSME sector. These insights provide actionable strategies for policymakers, lenders, and MSME stakeholders to promote long-term financial sustainability and inclusive economic growth.