“Debt Financing” is when a company raises money by issuing Debt to Investors in addition to or instead of selling shares of its Capital Stock (i.e., an Equity Financing). A company may elect to raise money through a Debt Financing when, among other things, (i) the Stockholders of the company do not want to give up equity ownership and experience Dilution, (ii) the new Investors want liquidation priority over the prior equity Investors and other Stockholders, and/or (iii) the new Investors are interested in receiving periodic Interest payments as part of their return on investment.
Common types of Debt Financing include:
- Convertible Debt;
- Secured and unsecured Bank Loans;
- Bonds; and
- Secured and unsecured Promissory Notes.