What is the money raised by taking out loans called?

• A. Pro forma
• B. Equity Capital
• C. Debt Capital
• D. Bootstrapping

Answer: (C)

Debt capital is money raised by borrowing from lenders, such as banks or bond buyers. It creates a liability on the company and must be repaid with interest on a set schedule. This financing avoids giving up ownership or control, and the interest expense is often tax-deductible, which can reduce the after-tax cost of the funds. But it comes with fixed repayment obligations, which can strain cash flow if the business faces slow revenue or higher costs, and it may bring covenants or limits on future borrowing. By comparison, equity capital comes from selling ownership stakes and dilutes control but doesn’t require mandatory repayments. Bootstrapping relies on internal funds and revenue, avoiding debt and equity entirely. Pro forma is not a source of funds; it’s a forecast used for planning and analysis.