Debt Financing

A A A

DEFINITION

When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid.

INVESTOPEDIA EXPLAINS

The other way of raising capital is to issue shares of stock in a public offering. This is called equity financing.


RELATED TERMS
  1. Levered Free Cash Flow

    The free cash flow that remains after a company has paid its obligations on ...
  2. Equity Financing

    The act of raising money for company activities by selling common or preferred ...
  3. Overleveraged

    Occurs when a business is carrying too much debt, and is unable to pay interest ...
  4. Capital Structure

    A mix of a company's long-term debt, specific short-term debt, common equity ...
  5. Delayed Draw Term Loan

    A special feature in a term loan that stipulates that the borrower can withdraw ...
  6. Dividend Recapitalization

    When a company incurs a new debt in order to pay a special dividend to private ...
  7. Refinancing Risk

    1. The risk that an early unscheduled repayment of principal on mortgage-backed ...
  8. Commercial Loan

    A debt-based funding arrangement that a business can set up with a financial ...
  9. Pre-Money Valuation

    A slang phrased that refers to the value of a company's stock before it goes ...
  10. Deleverage

    A company's attempt to decrease its financial leverage. The best way for a company ...
Related Articles
  1. Convertible Bonds: Pros And Cons For ...
    Bonds & Fixed Income

    Convertible Bonds: Pros And Cons For ...

  2. 13 Pre-Issue Corporate Bond Questions ...
    Options & Futures

    13 Pre-Issue Corporate Bond Questions ...

  3. The Ins And Outs Of Corporate Eurobonds
    Forex Education

    The Ins And Outs Of Corporate Eurobonds

  4. The Pros And Cons Of Small Business ...
    Entrepreneurship

    The Pros And Cons Of Small Business ...

  5. Debt Reckoning
    Investing

    Debt Reckoning

  6. Defeasance Reduces Commercial Real Estate ...
    Options & Futures

    Defeasance Reduces Commercial Real Estate ...

  7. Bond Basics Tutorial
    Retirement

    Bond Basics Tutorial

  8. Has Stock Bias Affected Your ETF Asset ...
    Bonds & Fixed Income

    Has Stock Bias Affected Your ETF Asset ...

  9. Buying bonds at a premium? Note these ...
    Bonds & Fixed Income

    Buying bonds at a premium? Note these ...

  10. Is Ukrainian Debt Worth a Look?
    Bonds & Fixed Income

    Is Ukrainian Debt Worth a Look?

comments powered by Disqus
Hot Definitions
  1. Genuine Progress Indicator - GPI

    A metric used to measure the economic growth of a country. It is often considered as a replacement to the more well known gross domestic product (GDP) economic indicator. The GPI indicator takes everything the GDP uses into account, but also adds other figures that represent the cost of the negative effects related to economic activity (such as the cost of crime, cost of ozone depletion and cost of resource depletion, among others).
  2. Accelerated Share Repurchase - ASR

    A specific method by which corporations can repurchase outstanding shares of their stock. The accelerated share repurchase (ASR) is usually accomplished by the corporation purchasing shares of its stock from an investment bank. The investment bank borrows the shares from clients or share lenders and sells them to the company.
  3. Microeconomic Pricing Model

    A model of the way prices are set within a market for a given good. According to this model, prices are set based on the balance of supply and demand in the market. In general, profit incentives are said to resemble an "invisible hand" that guides competing participants to an equilibrium price. The demand curve in this model is determined by consumers attempting to maximize their utility, given their budget.
  4. Centralized Market

    A financial market structure that consists of having all orders routed to one central exchange with no other competing market. The quoted prices of the various securities listed on the exchange represent the only price that is available to investors seeking to buy or sell the specific asset.
  5. Balanced Investment Strategy

    A portfolio allocation and management method aimed at balancing risk and return. Such portfolios are generally divided equally between equities and fixed-income securities.
  6. Negative Carry

    A situation in which the cost of holding a security exceeds the yield earned. A negative carry situation is typically undesirable because it means the investor is losing money. An investor might, however, achieve a positive after-tax yield on a negative carry trade if the investment comes with tax advantages, as might be the case with a bond whose interest payments were nontaxable.
Trading Center