What is debt financing?

Debt financing is a way for businesses to get the capital that they need to open or to operate an existing business. Debt financing is when a person, business, bank or other entity provides capital to a business and the business has the obligation to pay back the principal on that loan plus an agreed upon rate of interest. Many businesses find that debt financing is advantageous because it provides needed capital while allowing the existing owners to maintain ownership and control of the business. Businesses who engage in debt financing may also be eligible for significant tax deductions. However, businesses need to be able to repay their loans according to the agreed upon repayment schedule in order to avoid negative consequences.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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