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Debt Financing

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Debt financing refers to the borrowing of funds in order to finance a purchase, acquisition or expansion. Debt financing applies to both individuals as well as to businesses and corporations. For businesses and corporations debt financing often involves the selling of notes, bonds, mortgages or other debt instruments. The individuals and financial institutions which provide the debt financing become creditors. Since debt financing involves borrowed funds, debt financing must be repaid, typically in installments and with interest. The interest that must be paid on debt financing is determined by the creditworthiness of the borrower, the intended use of the funds, and by the current financial climate. Businesses and corporations find debt financing attractive because the interest paid is tax deductible. The opposite of debt financing is equity financing.



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