Debt Financing

Definition:

Debt financing is basically money that you borrow to run your business.

You can think of debt financing as being divided into two categories, based on the type of loan you are seeking: long term debt financing and short term debt financing.

Long Term Debt Financing usually applies to assets your business is purchasing, such as equipment, buildings, land, or machinery. With long term debt financing, the scheduled repayment of the loan and the estimated useful life of the assets extends over more than one year.

Short Term Debt Financing usually applies to money needed for the day-to-day operations of the business, such as purchasing inventory, supplies, or paying the wages of employees. Short term financing is referred to as an operating loan or short term loan because scheduled repayment takes place in less than one year. A line of credit is an example of short term debt financing.

Also Known As: Capital.

Common Misspellings: Det financing, debt fiancing.

Examples:

Joan got long term debt financing from the bank to buy the new loom she needed for her weaving business.
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