Debt Financing

It often gets necessary for a company to raise money for managing office expenditures or initiating new projects. When such a situation comes by, the business body sells debt items to organizational investors or any individual lender. When coming up with debts, the company has to confront creditors and scheduled payment of debt interest amounts.

Or, simply,

It is a scheme where a company borrows capital under the agreement to return back the debt-money along with a certain percentage of interest in the future; it is defined as debt financing. The company often takes up such financing initiations to capitalize on the business acquisition.

Key Focus of Debt Finance

Due financing sells fixed income sourcing items of the company to raise capital.

This type of funding is capable of generating a bigger amount from selling debt items, However, it leaves the company in debt and the capital flow of the company temporarily narrows down until all debts are cleared.

You eventually have to return back your debt amount with interest at agreeable time

Keep in mind the borrowed money. Eventually, the company has to return the money on time. This return amount also includes a certain percentage of interest, as per agreements beforehand.

This scheme is opposite to the equity financing which sells company's equity shares.

In debt financing, you borrow capital in return for fixed incoming capitals of the company to raise capital, whereas, in equity financing, the company shares a portion of business equity to third-party investors.

How debt financing works?

The company sells fixed-income items, such as bonds and bills to investors for company benefits.

Upon issuing the package (bond, bill) in the market, institutional investors purchase those items.

As an expense, the company remains in debt, for a period of time until the loan amount and interests are paid back.


Measuring Debt Finance

You can measure debt finance through a simple formula that calculates the amount of debt.

The formula for calculating debt finance is the Cost of debt = Interest expense x (1 – Tax Rate).

Another way of measuring debt financing amount is the debt to equity ratio; Companies often customize and use this ratio as per company preference.

 

Interest rates for Debt Finance

Lending the fund in due capitalization means repayment of the amount and a percentage of interest with the capital.

Wondering what would be the actual interest rate or your business loan in the market?

Connect with us, let us know about your business anxiety and get the knowledge about the genuine rate against your borrowed sum.

Our Services

Investors and companies often falls in jeopardy when choosing between due funding and equity funding. Although both have the same goal; and that is raising fund for the company’s benefit. However, the ways of gathering money is what makes it more confusing for companies and individuals.

Reit.com.bd here is always ready to pull you out from such confusion. Our team is on standby to clear out your confusion about debt and equity finance. We also offer useful insights regarding the ratio of these two financing implications in your business.

We assist in:

Debt-finance management
Debt finance amount calculation services
Consultation regarding possible risks and benefits