What is debt financing?



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Please can explain in detail what is debt financing and its benefits to an organization

2 Answer(s)


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When a company borrows money from a bank or individuals to fund a project then it is called debt financing.
companies typically take debt -
1) To prevent equity dilution since new shares need not be issued
2) To increase ROI since then your profits are coming from someone elses money being invested.

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When a company 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 then it is called debt financing.