DEFINITION of 'Tenured Capital'

Loans offered by the government to key business sectors. Tenured capital is most commonly associated with specific sectors of interest to the nation, such as providing funds to veterans, disaster relief, education, and agriculture.

BREAKING DOWN 'Tenured Capital'

Starting a business requires funds, and two of the most common funding mechanisms are debt and equity. In the case of equity, a business can exchange a portion of the overall ownership for money. Business owners may shy away from this option because it cedes some control of the business to outside parties. The other funding option – debt – can be difficult for small businesses that lack collateral or that cannot obtain a loan at a low enough rate.

Governments can help businesses obtain financing by using their significantly greater borrowing power to provide loans at a lower interest rate than a business may obtain from private lenders. Government lenders can structure the repayment period of the loan to be of a longer duration, since the government’s stakeholders are different than the shareholders of private sector lenders.

A number of different stakeholders may have access to tenured capital. Governments often support farmers and the agricultural sector by providing loans for storage unit construction, machinery, and animals or plants. Other types of loans include industrial loans used to purchase machinery and build factories, as well as loans to build affordable housing.

Requirements set out by government lenders may be different than lenders in private sector. Additional rules about how the money can be used or reported may be added to the loan agreement, which may deter businesses from wanting to take out the loan. Private sector loans often contain fewer stipulations – though often still require a business plan – and thus may seem more attractive. Businesses have to weigh the higher interest rates of private sector loans against any requirements the government loan may have.

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