Debt Financing

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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.

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.

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