Debt financing is when a firm sells fixed income products, such as bonds, bills, or notes, to individual or institutional investors to access the capital needed the company’s growth and expansion plans.

One of the main advantages of debt financing over equity financing is that the firm retains full ownership over running of the business as investors have are considered lenders and not partial owners of the company. Another advantage is that debt interest costs could potentially be fully tax-deductible as a business expense, and in the case of long-term financing, the repayment period can be extended over many years, reducing the monthly expense. As loan repayment are generally of a fixed rate, the interest expense provides a certainty in budgeting and business planning purpose.