Debt Financing
What is Debt Financing?
Debt financing is a method of raising capital by borrowing money that must be repaid over time, usually with interest. Startups may use debt financing to fund growth, cover operational expenses, or invest in capital expenditures without giving up equity. Common forms of debt financing include loans, bonds, and lines of credit.
Advantages and Disadvantages of Debt Financing
- Advantages: Allows founders to retain ownership and control, with fixed repayment terms.
- Disadvantages: Requires regular interest payments and may involve collateral.
- Risk of Default: If the business cannot meet debt obligations, it may face financial difficulties.