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What Does Debt Financing Mean?

Debt financing occurs when a company borrows money or secures financing through loans, with the obligation to repay the money (typically with interest).

Generally, a corporation will engage in debt financing by selling bonds in the marketplace or to private investors, or with promissory notes or commercial paper. Generally the terms of the bond or the loan will have the company commit as collateral assets of the business, such as real estate, cash on hand, or fixed assets.

In a low interest rate environment, a company may opt for debt financing versus equity financing, since they can secure loans on the cheap.

Keywords: interest rates, leverage, bonds, debt, commercial paper, private investors, promissory notes, debt financing,