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Debt Financing

Debt Financing

Debt financing occurs when a firm raises money for working capital or capital expenditures by selling debt instruments to individuals and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid.1 The other way to raise capital in debt markets is to issue shares of stock in a public offering; this is called equity financing.

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