What is the main characteristic of loan capital?

The main characteristic of loan capital is that it is documented by a debenture. Loan capital refers to funds that are borrowed for a set period of time and typically come with an obligation to pay interest and repay the principal amount borrowed. This type of capital is evidenced by a legal document known as a debenture, which outlines the terms of the loan agreement, including interest rates, repayment schedules, and any collateral involved.

In contrast to equity ownership, which is represented by shares in a company, loan capital specifically represents borrowed funds rather than ownership in the business. It does not grant any voting rights to shareholders, as it is not associated with equity. Furthermore, loan capital is viewed as a liability on the company's balance sheet rather than a form of revenue; the funds generated through loan capital are not income, but rather debt that the company must manage and repay. Therefore, the documentation of loan capital by a debenture accurately summarizes its definition and importance in corporate finance.