Loan capital

We know that each company has its own financial resources, ie money resources at the disposal of the enterprise and designed to ensure the effective functioning, financial commitments and incentives for workers.Financial resources generated from its own funds and borrowings.

Own sources include income from the different activities, the proceeds from the sale of retired assets depreciation.Also, the financial resources generated from the stable liabilities, equivalent to its own sources.Stable liabilities are constantly in the back of the company, but he does not directly belong.

As the functioning of the need for funding is growing as increasing production program, increasing the wear of productive assets and so on.Therefore, there is a need to finance the growth of the company's capital.

For this reason, if the company lacks its own funds, it may involve any of the other organizations.They were called "borrowing."

Forms capital

In a broad sense, realize a capital sum accumulated property,

goods, assets that are used to generate revenue, profit.

In economic terms, it is the company's resources are used to finance basic and ongoing activities to ensure the effective and sustainable development of the organization.

Equity - a set of financial resources generated from the founders of the organization and performance of the company.

borrowed capital - is a kind of capital, which was received in the form of debt obligations to be indispensable to return and have a deadline.As a general rule, provide for periodic payments to the lender.An example of borrowed capital can serve as bonds, payables, bank credit, non-bank loans and so on.Equity and debt in the balance sheet are included in liabilities.In the balance sheets of enterprises borrowed funds are shown in the form of debt.Depending on the maturity of short-term and distinguish long-term debt.Thus, additional borrowings attracted for the reproduction of current and non-current assets.

advantages and disadvantages

Loan capital has the following advantages:

1. Extensive involvement, but with the guarantee of the guarantor, the presence of collateral and good credit rating.

2. Low cost in comparison with a net worth due to the effect of "tax shield".

3. Increased financial capacity, if necessary, a significant expansion of assets and the growth of economic activity.

4. The ability to generate growth of financial profitability.

At the same time borrowing incorporates the following disadvantages:

1. Its use generates hazardous financial risks of loss of pay and reduction of financial stability.

2. The assets formed from borrowed capital, provide lower profit margins, reduced by the amount of interest on loans.

3. The complexity of the procedures to attract, since the granting of the loan is directly dependent on the decisions of the creditors and, in some cases, require third-party guarantees or collateral.

Thus, an organization that uses borrowed capital, has a large financial potential of development and growth opportunities of financial profitability of activities, but the use of borrowed funds generate financial risks and the threat of bankruptcy.