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Simple English definitions for legal terms
debt financing
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A quick definition of debt financing:
Debt financing is when a company borrows money from a bank or sells bonds to investors to raise funds. This is different from equity financing, where a company sells shares in the business to raise money. Debt financing is usually paid back with interest over time. It can be used for things like building a new factory or buying equipment.
A more thorough explanation:
Debt financing is a method of raising funds by borrowing money from a financial institution or issuing bonds or notes. The borrowed money must be repaid with interest over a set period of time.
- A company takes out a loan from a bank to expand its operations.
- A government issues bonds to finance a new infrastructure project.
These examples illustrate how debt financing involves borrowing money that must be repaid with interest. The borrower must make regular payments to the lender until the debt is fully paid off.