Debt financing

Welcome to today's lecture on debt financing. Debt financing is the primary way companies and governments secure funds to make investments, expand operations or cover short-term needs. It involves raising capital by borrowing, typically through loans, bonds or other credit instruments with an obligation to repay the amount plus interest. Unlike equity financing, debt financing lets owners retain control but requires meeting fixed repayment schedules. Debt financing impacts nearly every sector of our economy. Debt financing takes many forms each suited to different needs and stages of an organization's life cycle. Common examples for companies include bank loans, lines of credit, and corporate bonds. In the UK and US, terms like debentures and bonds are often used interchangeably. Start-ups and growing businesses may also access debt through leasing, convertible notes, or credit cards. Governments finance budget deficits by issuing bonds. All debt involves contractual obligations for timely repayment of principal and interest and collateral or covenants offer lenders protection while affecting borrowing costs. The key advantage of debt financing is the ability to leverage someone else's money for growth, often at a lower cost than raising equity. Interest payments are frequently tax deductible and in times of profit, debt can magnify returns to shareholders, a principle known as leverage. However, the risks are significant.