Q.2 (iii) Borrowed Capital
Best answer
Answer: Borrowed capital is the capital raised by a company by way of loans from outsiders.
It is raised through debentures, bonds, public deposits, and loans from banks and financial institutions. The providers are creditors, not owners, of the company. They get interest at a fixed rate whether the company earns a profit or not, and the amount must be repaid after a fixed period. It is usually secured by a charge on the assets of the company, and lenders have no voting rights. Since interest is a tax-deductible expense, borrowed capital is cheaper and helps trading on equity, but it adds a fixed burden.
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