Elucidate what do you mean by Debt Financing

Question

Elucidate what do you mean by Debt Financing?

Answer 1

Bonds represent debt. Bondholders have a claim for a fixed amount (principal and interest). Interest on debt is deducted in arriving at the taxable income of the corporation. If debt is not repaid, the creditor can sue for breach of contract and even force the corporation into bankruptcy. Holders of bonds secured by property or assets in general are entitled to be paid out ahead of general creditors on dissolution of corporation.