Debt capital is the capital that a business raises by taking out a

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that ...

. It is a loan made to a company, typically as

growth capital Growth capital (also called expansion capital and growth equity) is a type of private equity investment, usually a minority investment, in relatively mature companies that are looking for capital to expand or restructure operations, enter new mar ...

, and is normally repaid at some future date. Debt capital differsElite Mergers & Acquisitions: M&A Advisor: Financing Options For Mid Market Companies
/ref> from

equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the diff ...

share capital A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived by the issue of shares in the corporation to a shareholder, usually for cash. "Share capital ...

because subscribers to debt capital do not become part owners of the business, but are merely

creditor A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...

s, and the suppliers of debt capital usually receive a contractually fixed annual percentage return on their loan, and this is known as the

coupon rate In marketing, a coupon is a ticket or document that can be redeemed for a financial discount or rebate when purchasing a product. Customarily, coupons are issued by manufacturers of consumer packaged goods or by retailers, to be used in r ...

. However, sometimes the loan is paid back based on a percentage of the company's monthly revenue instead of a fixed interest rate, such as the case with

revenue-based financing Revenue-based financing or royalty-based financing (RBF) is a type of financial capital provided to small or growing businesses in which investors inject capital into a business in return for a fixed percentage of ongoing gross revenues, with paymen ...

. Debt capital ranks higher than

equity capital In finance, equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of the assets. For example, if someone owns a car worth $2 ...

for the repayment of annual returns. This means that legally the interest on debt capital must be repaid in full before any dividends are paid to any suppliers of equity. Likewise, in dissolution, repayment to debt holders ranks higher than distributions to preference holders and equity holders. Equity holders (shareholders) have all rights in the business, but the debt holders have no rights in the business. A company that is highly ''geared'' (UK), or ''leveraged'' (US), has a high debt-to-equity capital ratio.

References

{{reflist * Corporate Finance: Theory and Practice, by Steve Lumby and Chris Jones, Thompson, London.

Capital Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used fo ...