What is Debt Financing?

Category: Finance

1Definition

Raising capital by borrowing money that must be repaid with interest, rather than selling ownership stakes.

2Context

Preferred when owners want to maintain control. Interest payments are tax-deductible, unlike dividends.

3Example

A company issues $10 million in bonds to build a factory, paying 5% interest annually until the bonds mature.

⚠Common Trap

Debt financing isn't 'worse' than equity—it's often cheaper and doesn't dilute ownership. The right choice depends on circumstances.

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