What Is Debt Financing? Definition
Debt financing is a method of funding a business and involves borrowing money from another entity.
This could be money that is needed for a startup or for operational capital for an existing business. The most common form of debt financing is when a company approaches a bank and takes out a loan in order to fund their business.
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What Is Debt Financing? Additional Overview
Debt financing can also refer to the issuance of bonds by a company. A bond is a debt instrument, and a corporate bond is essentially a corporation asking for investors to lend it money in return for interest.
Selling shares in a company, instead of bonds, would be a form of equity financing.
Financing a new business using debt typically requires good credit, a solid business plan or some sort of asset which the bank can use as collateral. These provide assurances to the bank that the loan will be repaid.
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