Debt Financing
Definition
Debt financing is when a business raises capital by borrowing money from lenders or issuing bonds. The borrowed funds need to be repaid over time with interest.
Analogy
Think of debt financing like taking out a student loan to pay for college. You borrow money from the bank or government, and then you have an obligation to repay it later with interest.
Related terms
Interest Rate: The cost of borrowing money, usually expressed as a percentage.
Principal: The original amount borrowed or invested.
Credit Rating: An evaluation of an individual or entity's creditworthiness, which determines their ability to repay debts.
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