Debt Financing

debt financing

The acquisition of funds by borrowing. For example, a business may use debt financing to raise funds for constructing a new factory. Corporations find debt financing attractive because the interest paid on borrowed funds is a tax-deductible expense. Compare equity financing.

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Debt Financing

The act of a business raising operating capital or other capital by borrowing. Most often, this refers to the issuance of a bond, debenture, or other debt security. In exchange for lending the money, bond holders and others become creditors of the business and are entitled to the payment of interest and to have their loan redeemed at the end of a given period. Debt financing can be long-term or short-term. Long-term debt financing usually involves a business' need to buy the basic necessities for its business, such as facilities and major assets, while short-term debt financing includes debt securities with shorter redemption periods and is used to provide day-to-day necessities such as inventory and/or payroll. See also: Equity financing.

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Debt Financing

What Does Debt Financing Mean?

When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. As a result of lending the money, the individuals or institutions become creditors and fully expect to be repaid on the principal and interest.

Investopedia explains Debt Financing

Besides debt financing, the other way to raise capital is to issue shares of stock in a public offering. This is called equity financing.

Related Terms:
• Bond
• Capital Structure
• Commercial Paper
• Credit Spread
• Deleverage