What is debt financing?

[accountinglads]

Debt financing is when a business raises money by borrowing from external sources, such as banks or private lenders. In this method, the company agrees to repay the borrowed amount with interest over a specified period. It is a popular way for companies to fund operations, expansion, or large purchases without giving up ownership. Unlike equity financing, debt financing does not dilute ownership, but it does create a liability on the balance sheet. Regular repayment is essential to maintain creditworthiness and avoid penalties.

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