Borrowed Capital

“Neither a borrower nor a lender be,” Shakespeare tells us in Hamlet. But if you are starting a new business or buying a house, chances are you will need to borrow some capital. To be in debt or not to be in debt, that is the question.

Borrowed capital is when you go hat in hand to a bank or other lender, fill out all kinds of paperwork, and hopefully obtain a loan based on your income or other assets. The value of your home serves as collateral (what they will take if you don’t pay back the loan) and for businesses, the collateral might be the value of your accounts receivable or finished inventory.

Borrowed capital is different from “equity capital,” where you are making a down payment on a house from your own savings or selling all your jewelry in order to start your new business. Another way companies borrow capital is to issue bonds that have to be paid back with interest.