Debt Financing

Debt financing refers to the method by which a company raises capital through the sale of debt instruments, such as bonds, bills, or notes. In this way, companies borrow money from investors with the promise of repaying the principal along with interest on the debt. This type of financing is beneficial for companies that do not wish to dilute ownership through equity financing. However, it requires regular interest payments and the eventual repayment of the principal, which can be a drain on company resources.