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

loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money. The document evidencing the deb ...

. 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 interest, in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets ...

, 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 or

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 ...

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 propert ...

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 ...

. 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. Debt capital ranks higher than equity capital 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. Debt