Debt Financing


DEFINITION of 'Debt Financing'

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.


Loading the player...

BREAKING DOWN 'Debt Financing'

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

  1. Levered Free Cash Flow

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

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

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

    A mix of a company's long-term debt, specific short-term debt, ...
  5. Pre-Money Valuation

    A slang phrased that refers to the value of a company's stock ...
  6. Deleverage

    A company's attempt to decrease its financial leverage. The best ...
Related Articles
  1. Investing Basics

    3 Companies That Hate Debt Financing

    Learn how companies such as Chipotle, Bed Bath & Beyond, and Paychex are able to maintain impressive levels of growth without debt financing.
  2. Entrepreneurship

    Is Equity Financing the Right Choice for Your Business?

    Discover the benefits and drawbacks of equity financing for a small business, and learn when equity financing should be used instead of debt financing.
  3. Entrepreneurship

    The 4 Best Websites For Small Business Loans

    Discover some of the best websites that small business owners utilize to obtain necessary financing at competitive interest rates.
  4. Investing

    What is Debt Financing?

    When a company needs to pay for something, it can pay with cash, or it may finance the purchase. Financing means that it gets the money from other businesses or sources, in return for obligations. ...
  5. Bonds & Fixed Income

    Convertible Bonds: Pros And Cons For Companies And Investors

    Find out why businesses choose this type of financing and what effect this has on investors.
  6. Options & Futures

    13 Pre-Issue Corporate Bond Questions For Businesses

    When a company needs more funding, there are many options. Corporate bonds is just one of them.
  7. Forex Education

    The Ins And Outs Of Corporate Eurobonds

    Corporate eurobonds simplify expansion for MNCs, though there are a few more hoops to jump through.
  8. Entrepreneurship

    The Pros And Cons Of Small Business Credit Cards

    Business owners have many financial tools at their disposal. Should a credit card be one of them?
  9. Investing

    Debt Reckoning

    Learn about debt ratios and how to use them to assess a company's financial health. You could save a lot of money!
  10. Options & Futures

    Defeasance Reduces Commercial Real Estate Fees

    Try this alternative to short-term variable-rate financing when using leverage to buy property.
  1. What are the different equity financing options available to companies in the United ...

    Finding and attaining affordable financing is an ongoing challenge for most businesses within the United States. Debt financing ... Read Full Answer >>
  2. Are high yield bonds a good investment?

    Bonds are rated according to their risk of default by independent credit rating agencies such as Moody's, Standard & ... Read Full Answer >>
  3. What are the maximum Social Security disability benefits?

    The maximum Social Security disability benefit amount for a single eligible person in 2015 is $1,165 per month, but you can ... Read Full Answer >>
  4. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  5. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
  6. Who or what is backing municipal bonds?

    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!