debt financing

(noun)

funding obtained by borrowing assets

Related Terms

Examples of debt financing in the following topics:

  • Debt Finance

    • A company uses various kinds of debt to finance its operations .
    • The various types of debt can generally be categorized into:
    • A basic loan or "term loan" is the simplest form of debt.
    • A company uses various kinds of debt to finance its operations.
    • Outline the characteristics of the different types of debt financing available

  • Financing Company Operations

    • A company can be self-financed or financed through the solicitation and participation of outside investors.
    • Examples of bootstrapping include: Owner financing, sweat equity, minimization of the accounts receivable, joint utilization, delaying payment, minimizing inventory, subsidy finance, and personal debt.
    • Examples of Bootstrapping: Owner financing Sweat equity Minimization of the accounts receivable Joint utilization Delaying payment Minimizing inventory Subsidy finance Personal Debt
    • A company can be self-financed or financed through the solicitation and participation of outside investors .
    • The use of private credit card debt is the most known form of bootstrapping, but a wide variety of methods are available for entrepreneurs.

  • Equity Finance

    • Companies can use equity financing to raise money and/or increase shareholder liquidity (through an IPO).
    • Financing a company through the sale of stock in a company is known as equity financing.
    • Alternatively, debt financing (for example issuing bonds) can be done to avoid giving up shares of ownership of the company.
    • Unofficial financing known as trade financing usually provides the major part of a company's working capital (day-to-day operational needs).
    • Such costs are separated into a firm's cost of debt and cost of equity and attributed to these two kinds of capital sources.

  • Debt Utilization Ratios

    • In this case, it has a debt ratio of 200%.
    • The debt ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt.
    • The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.
    • D/E = Debt(liabilities)/Equity.
    • The debt service coverage ratio (DSCR), also known as debt coverage ratio (DCR), is the ratio of cash available for debt servicing to interest, principal, and lease payments.

  • Long-Term Loans

    • Government debt (also known as public debt or national debt) is the debt owed by a central government.
    • Government debt is one of numerous methods of financing government operations.
    • However, central banks may buy government bonds in order to finance government spending, thereby monetizing the debt.
    • A debenture is a document that either creates or acknowledges a debt, and the debt is one without collateral.
    • In corporate finance, debenture refers to a medium- to long-term debt instrument used by large companies to borrow money.

  • Corporate Bonds

    • The opposite of secured debt is unsecured debt, which is not linked to any specific piece of property.
    • Senior debt has seniority over subordinated debt in the issuer's capital structure.
    • Subordinated debt is repaid after other debts in the case of liquidation or bankruptcy.
    • Such debt is referred to as subordinate, because the debt providers (the lenders) have subordinate status relative to the normal debt.
    • Because subordinated debt is repaid only after other debts have been paid, they are riskier for lenders.

  • The Importance of Finance

    • Managerial finance concerns itself with the managerial significance of finance.
    • A person working in managerial finance would be interested in the significance of a firm's financial figures measured against multiple targets such as internal goals and competitor figures.They may look at changes in asset balances and probe for red flags that indicate problems with bill collection or bad debt as well as analyze working capital to anticipate future cash flow problems.
    • Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make those decisions.
    • The primary goal of corporate finance is to maximize shareholder value.
    • Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders.

  • Collection from Delinquent Payables

    • Debt compliance describes various legal measures taken to ensure that debtors honor their debts.
    • There are a number of repercussions for debt noncompliance.
    • In finance, the term "debt compliance" describes various legal measures taken to ensure that debtors, whether individuals, businesses, or governments, honor their debts and make an honest effort to repay the money that they owe.
    • This occurs when a consumer becomes severely delinquent on a debt.
    • In the United States, as the charge off number climbs or becomes erratic, officials from the Federal Reserve take a close look at the finances of the bank and may impose various operating strictures on the bank and in the most extreme cases, may close the bank entirely.

  • Alternate Sources of Funds

    • The cash flow statement, which shows cash inflows and outflows for a specific reporting period and distinguishes between three types of activities that generate or use cash: operating, investing, and financing.
    • Receipts for the sale of loans, debt, or equity instruments in a trading portfolio
    • Financing activities include the inflow of cash from investors, such as banks and shareholders.
    • Other activities which impact long-term liabilities and equity of the company are also listed under financing activities, such as:
    • The cash flow statement shows cash inflows and outflows for a specific reporting period and distinguishes between three types of activities that generate or use cash: operating, investing, and financing.

  • Secured vs. Unsecured Funding

    • Debt refers to an obligation.
    • A loan is a monetary form of debt.
    • A loan constitutes temporarily lending money in exchange for future repayment with specific stipulations such as interest, finance charges, and/or fees.
    • Generally speaking, secured debt may attract lower interest rates than unsecured debt due to the added security for the lender.
    • There are two purposes for a loan secured by debt.