Debt Financing - Launchopedia

Debt Financing means when a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay principal and interest on the debt.⁵

Debt

Debt Instrument

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Working Capital

In accounting terms, it is the difference between current assets and current liabilities that can be turned into cash. Positive Working Capital means that the company has sufficient liquid assets to cover its short term liabilities (expenses).⁶

Capital Expenditures

Capital Expenditures is money spent by a company to add or expand property, plant, and equipment assets, with the expectation that they will benefit the company over a long period of time (more than one year).⁹

Institutional Investors

Organizations that professionally invest, including insurance companies, depository institutions, pension funds, investment companies, mutual funds, and endowment funds.³
Institutional Investors refers mainly to insurance companies, pension funds and investment companies collecting savings and supplying funds to markets but also to other types of institutional wealth like endowment funds, foundations, etc.⁵

Debt Financing

Debt

Any obligation by one person to pay another. May be a primary (direct) obligation as in a Note, or a secondary (contingent) obligation as in a guaranty.³
This is an amount of money that a borrower owes to an individual, investor, or lending institution. In the finance world, the word “debt” is often associated with interest payments. For example, when an individual has a credit card limit of $5,000, the lender, usually a bank, is willing to lend the credit card holder $5,000 of credit. If the lender uses $500 of that total amount, they are now considered to be in $500 debt until the total amount is paid. Partial payment of an owed amount always encompasses interest.⁴

Capital

Financial capital is a term that can refer to the money exchanged between entrepreneurs and investors during a business deal. Entrepreneurs need to raise capital for their startups while investors can provide them with the needed capital (or funding). Financial capital usually comes with interest, and new business owners can use their financial capital in purchasing real capital (or machinery or equipment) for their new business.⁴

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