– Term Loan: a bank loan for a specific amount that has an agreed repayment schedule and either a fixed or floating interest rate. There are many types of bank loans, such as: Debt involves borrowing money that has to be repaid at a later date, while equity involves raising funds by selling interest in the business. – Commercial Paper: these are similar to bonds but mature earlier – less than 12 months.īusinesses can utilize several financing options, which are mainly broken into two categories: debt finance and equity finance. – Medium Term Notes: which have a maturity of up to thirty years. – Bonds: such as junk bonds, high yield bonds, eurobonds and several others, which have a maturity of at least one year. There are many types of debt securities, including: The debt security issuer promises to repay the investor the amount he or she paid (lent) on or by a specified date – this date is when a debt security ‘matures’ – typically with interest.ĭebt securities, just like equity securities, can be traded – investors can buy and sell them. The advantage of debt financing, as opposed to equity financing, is that you do not lose ownership – a disadvantage is that your monthly expenses will be higher and your company is at greater risk of getting into financial trouble.Ī debt security is a financial instrument that works like an IOU (I owe you). There are two main types of debt finance:ĭebt finance refers to borrowing money either in the form of a loan or selling securities. The terms of the debt finance will depend on how much is borrowed and the borrower’s creditworthiness. A debt security is any kind of debt instrument that can be purchased or sold between two parties and has basic terms defined.ĭebt finance involves raising funds by borrowing money from a lender, with a promise to pay back at a later date – usually with interest. Debt finance or debt financing mainly refers to borrowing money by either taking out a bank loan or issuing debt securities.
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