What is outstanding capital?
Outstanding capital is the amount of capital due by the borrowers, interests and provisions excluded. Therefore, outstanding capital is not the same as the amount invested.
Even if it is a simple concept, it is important to correctly understand how outstanding capital is calculated, as it is not as simple as it looks and sometimes this might generate some confusion.
Where and how outstanding capital is displayed?
The Summary area shows an overview of the total amount of outstanding capital, calculated on all the projects to which you lent to:
You can also get a more detailed view of the outstanding capital of each project in the Loans page. The first example below shows the outstanding capital of a project up to date in its repayments whereas the second example shows the outstanding capital of a project with a default of more than 120 days (see next paragraph for explanation about how defaults affect the outstanding capital).
How outstanding capital is affected by defaults
Project defaults have an impact on the outstanding capital. In case of default, we apply a provision to your outstanding capital to give you the most accurate picture of the health and profitability of your portfolio at any given time. This estimated loss is applied to the outstanding capital and increases with the number of days of delay (from 40% to 80% and ultimately, to 100%).
As the provision applied increases, the outstanding capital is progressively cut. Nevertheless, if the company regularises her situation, the haircut is removed and the outstanding capital will grow.
How to calculate outstanding capital?
Although outstanding capital seems quite simple to understand as a notion, the way it is calculated might be a little tricky and generates confusion in many cases. Let’s see why.
1. The outstanding capital of each project
When verifying the exactitude of the outstanding capital of each project, you may be tempted to subtract the amount already received from the total capital you lent to the project. This always results in a wrong amount because repayments are made up not only of principal but also of interest. As mentioned at the beginning of the article, the outstanding just shows the principal to be received excluding the interest and the provisions.
In order to calculate the correct outstanding amount you need to separate interests from the total amount received, and then subtract the total capital repayment from the initial loan.
Let’s take an example. If you consider the project displayed above, which has a 40% provision, the outstanding capital will be calculated as follows:
initial loan - capital received - provision = outstanding capital
2. The outstanding capital of the portfolio
Let’s now calculate the total outstanding capital of your portfolio, considering the project mentioned above is the only one with a 40% provision. To do this, you can take a look to the Balance section:
The initial amount lent is €580, while the capital repayment (excluding interests) is €201.76, to which you need to add the 40% provision (€5,98). The total outstanding balance will be:
580 - 201.76 - 5.98 = € 372,26
Any doubt? If you still have some issues understanding your outstanding capital or your portfolio, don’t hesitate to contact us at [email protected].