What is debt capital? Let's discuss its basic concepts and the implications of when organizations decide to finance their current and future operations. (air whooshing) We will go over the loans from private and commercial banks, lines of credit that banking institutions can provide and the impacts that debt capital can have on personal credit. We'll also address the reasons why organizations turn to debt financing and how to determine their debt capacity. (air whooshing) Debt capital is a method of borrowing money from lending institutions to acquire the resources needed to start a business, sustain daily operations or finance capital purchases to remain competitive for future operations. This capital can be used to purchase raw materials, cover cost of labor and purchase capital equipment such as buildings. (air whooshing) The cost of capital varies between different lending institutions and is primarily based on a business's ability to pay back the loan. A company's past credit performance as reported by credit reporting agencies is another consideration. The price of lending known as the interest rate is also based on the amount of debt capital that the business is obligated to pay. Debt financing can be for short-term or long-term periods and the cost of debt will vary depending on the length of time. Debt financing often requires some type of collateral or pledge of assets to complete the loan. This collateral is held by the lending institution as a safeguard against future losses if the business fails to pay the loan back. The amount of debt financing needs to be controlled by the business because too much debt can hamper the organization's ability to access it in the future. Too much debt can cause lenders to have concerns about lending more money. So management should seriously consider the number of future payments needed to sustain the debt.