debt capital
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In terms of raising funds, debt capital refers to funds borrowed to a firm or individual. Debt Capital is opposed to equity, or share capital, in that subscribers to debt capital do not take ownership in the firm. Such creditors will typically receive a promise to repay the debt at a future date and earn interest. |
Firms are usually legally required to make payments on debt capital and interest, before dividends are paid to any owners.
Example – Company XYZ, a lumber company in Canada needs to raise ten-million dollars to invest in a more efficient lumber mill. They raised two-million in equity financing and an eight-million dollar bond (debt-capital) to finance the project. On that eight-million they pay 10% interest annually.
Example – Company XYZ, a lumber company in Canada needs to raise ten-million dollars to invest in a more efficient lumber mill. They raised two-million in equity financing and an eight-million dollar bond (debt-capital) to finance the project. On that eight-million they pay 10% interest annually.