Loan Capital Law and Legal Definition

Loan capital is part of a business' capital used that is (1) not equity capital, (2) earns a fixed rate of interest instead of dividends, and (3) must be repaid within a specified period, regardless of the business' financial position. It is that part of a company's capital structure which is raised by loans. It may be obtained from a bank or finance company as long-term loans, or from debt-equity investors in the form of debentures or preferred stock, and is usually secured by a fixed and/or floating charge on the firm's assets. Loan capital is a commodity whose use value is its ability to earn income in the form of interest. Unlike debt capital, it does not include short-term loans (such as overdraft).