Accounting Dictionary

Debt Financing

Debt financing means getting the money to start and run your company by borrowing money.

If I need $100,000 to buy equipment for my company, I could borrow the money. Even though I owe the bank this money and have to pay interest on the loan, the bank isn’t a shareholder (owner) of my company. They cannot tell me how to run my company. Best of all, they do not get a share in the profits of my company. However, it takes most companies about three years to become profitable. During those three years if I don’t make enough money to make my loan payments to the bank, the bank can force me into involuntary bankruptcy and seize my assets. That would be the end of my business.

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