Debt capital

Debt capital (Fremdkapital) is any money that doesn't belong to a company itself but is borrowed.

Forms:

• Bank loans: classic loans with fixed instalments
• Bonds: the company borrows money on the capital market
• Trade payables: invoices that haven't been paid yet
• Leasing: use of equipment/vehicles in return for regular payments

Advantages of debt capital:

✅ Interest is tax-deductible (tax advantage!)
✅ Owners keep full control (no dilution)
✅ Enables growth without having to raise equity

Risks:

❌ Interest ALWAYS has to be paid – even if no profit is made
❌ If the company can't pay: insolvency!
❌ Rising interest rates increase the burden

For private individuals: debt capital = your debts (loan, overdraft, mortgage). A healthy ratio: total debt should not exceed 40% of your assets.