Borrowed capital

In business administration , debt capital is capital that is made available to a legal person ( company or regional authority ) by its creditors for a limited period of time and is repayable or comes from internal financing ( provisions ). The opposite is equity .

General

Debt capital exists if the lending of capital can be terminated by the obligee in accordance with general rules of the law of obligations and is limited in time and justifies a (non-success-related) remuneration claim of the investor ( interest on loans ). These requirements also apply to shareholders to that do not provide their businesses with equity capital but debt in the form of shareholder loans . With the exception of the formation of provisions ( internal financing ), outside capital comes exclusively from external financing .

species

Borrowed capital includes in particular

Loans from banks , supplier credits , customer credits and bonds , which are combined with other financial instruments under the generic term liabilities ;
Provisions that are formed for foreseeable payments to be made later that the company is obliged to make, for example for pensions ( pension provisions ), tax payments and social benefits for the past financial year ;

Deferred income .

The change in borrowed capital is known as the financial balance . In general government, this usually corresponds to the budget balance in reporting entity there is no direct connection between the account balance and net lending, as changes in equity are possible.

Differentiation from equity

The - not always easy - distinction between equity and debt capital for creditors and analysts is of great importance for companies . If there is even the slightest possibility of repayment, then the corresponding balance sheet item belongs to outside capital. Therefore, all types of provisions (including pension provisions ) form part of the borrowed capital, since there is at least a 50 percent repayment probability. A non-performance-related interest rate also speaks in favor of outside capital. Hybrid forms of equity are a hybrid between equity and debt capital and are therefore also called mezzanine capital :

Subordinated loans (English junior debt ): Are loans according to § 488 Paragraph 1 BGB and thus debt capital, the repayment of which is linked to the condition that they only have to be repaid after other (senior) creditors have been satisfied ( senior debt ) . The condition is known as subordination designed subordination or subordination agreement and acts both in bankruptcy and in liquidation .

Participation rights (English participation rights ) are to blame legally established funds with shareholder typical property rights. In view of the large number of design options, it must be checked whether the issuer assumes an obligation to repay ( puttable instruments ) or whether the issuer only has a right of termination. A conditional repayment obligation only upon liquidation leads to the classification as equity, an unconditional one is to be shown as outside capital. In the case of credit institutions ( Section 10 (5) KWG) and insurance companies ( Section 214 (1), (2 ) and ( 4) VAG), profit participation rights can be recognized as regulatory equity if certain arrangements are made (see own funds (credit institution) ).

Dormant companies (English silent partnership ): These have under the legal concept more in the nature of a contractual obligation and are therefore to be considered in doubt as debt. In Section 231 (1) and Section 232 (2) HGB, loss sharing is provided, but it can be excluded (Section 231 (2) first half-sentence HGB). In the case of insolvency, the silent partner can assert his contribution that has not been consumed by losses as an insolvency creditor ( Section 236 (1) HGB).

Hybrid bonds (English hybrid bond ): These are bonds , an increase of debt, the first time usually tied after a period of 7 to 10 years are callable by the issuer (English issuer call options ). They usually have a subordinate clause for liquidation, dissolution and bankruptcy. There are hybrid bonds with very long maturities (between 30 and 100 years) and even "perpetual bonds" (English perpetuals ).

Shareholder loans (English shareholder loans ): They are formally While borrowing, but they are considered economic equity treated. Since November 2008, shareholder loans have been taken into account in the Insolvency Code (InsO) due to the law on the modernization of GmbH law and combating abuse (MoMiG) . All loan repayment claims by shareholders of a company without a natural person as a personally liable partner are classified as subordinated insolvency claims by law, regardless of their equity substitute character ( Section 39 (1) No. 5, Sections 44a, 135 and 143 InsO).

International rating agencies recognize such hybrid forms of financing in whole or in part as economic equity . It is assumed that there must be a long term and / or a high share of losses and can therefore lead to recognition as equity. Subordinated loans can be calculated with at least 50% of economic equity.

The differences between equity and borrowed capital can best be seen in insolvency proceedings : backward equity that a shareholder should raise can be demanded from the insolvency administrator as a performance in the masses ( Section 171 (2) HGB). The situation is different if it is a question of a shareholder's loan to the company or the debt of a non-shareholder. Here the lender can terminate the loan extraordinarily ( Section 490 (1) BGB). If the loan has already been granted, the claim for repayment takes part in the insolvency proceedings as an insolvency claim. Until October 31, 2008, equity-replacing loans were treated as equity in the insolvency proceedings. With the MoMiG , the question of whether the loan replaces equity or not has become obsolete ( Section 135 (1) InsO).

Accounting

In accounting , the types of origin and maturities of the borrowed capital must be stated in accounting law. According to Section 266 (3) of the German Commercial Code ( HGB) , borrowed capital is to be booked on the liabilities side of the balance sheet, separated into provisions (Section 266 (3) B) and liabilities (C). There are also separate balance sheet items for prepaid expenses (item D) and deferred taxes (item E). According to Section 268 (5) of the German Commercial Code (HGB), debt capital with a remaining term of <1 year and> 1 year is to be stated in the balance sheet, according to Section 285 No. To make attachment . The medium-term debt results from the subtraction of the short-term and long-term liabilities.

Key figures

In the balance sheet analysis, outside capital is the subject of a large number of economic indicators . These include vertical school thinking figures as debt ratio , or leverage ratio and horizontal indicators such as the degree of liquidity . One of the most important is the debt capital ratio, which provides information about the proportion of debt financing in total financing (= total assets ):

{\ displaystyle {\ text {Debt capital ratio}} = {\ frac {\ text {Debt capital}} {\ text {Balance sheet total}}} \ cdot 100 \, \%}

A high borrowed capital ratio increases the earnings risks because of the high debt servicing ( loan interest and repayment ), because more profits are used for interest expenses and thus the break-even point also rises with increasing debt ( cost leverage ). As a result, a high debt capital ratio brings employment risks with it. In addition, a high debt capital ratio contributes to an increase in future liquidity and refinancing risks and vice versa. If the debt ratio is low, the creditors' risk of default falls because their claims are increasingly covered by company assets. The level of the debt capital ratio is heavily dependent on the industry . While credit institutions have the highest debt capital ratio with around 85%, it accounts for 72.1% in the construction industry , 62.1% in retail , 60.5% in wholesale , 52.3% in the food and textile industry , 49.4% in the paper industry , 45 in the chemical industry , 7%, manufacturing 44.3%, optical industry 40.8% or automotive industry 38.9% of total assets (2008).

Debt capital in real estate financing

Debt capital is the sum of all loans taken out from banks and other lenders (e.g. employers , public authorities or private individuals) to finance a construction project or purchase price. It is usually secured with mortgages by these lenders .