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Debt Financing
Debt financing refers to loans that come with pre-determined terms between the borrower and the lender. These terms usually include the payback schedule and amount of interest. Both the lender and the borrower must agree to the terms of any debt financing.
Most small business loans that are attained through a traditional lending institution, such as a bank, are considered debt financing type loans. This is because they have a defined pay back schedule, usually consisting of monthly payments, and a set interest rate. Some small businesses utilize personal loans from friends and family to get their feet off the ground. Many times these loans are not considered debt financing, because they are paid back whenever funds are available. There are also a few types of loans that you can receive through lending institutions, such as accounts receivable financing, that may not be considered debt financing, as they do not have a set payback structure.
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