Debt financing usually comes from loans made to a company from a bank or other external financial source. The loans are expected to be repaid with interest.
The choice to use debt capital as a source of financing depends on many factors, such as:
- The repayment period
- The interest rate
- Tax implications
Debt can be short term or long term:
- Short-term debt includes loans with a term of less than a year (operating term loans) and lines of credit. These loans are typically used to finance the day-to-day operations of a business such as paying employee wages or purchasing inventory and raw materials.
- Long-term debt includes loans with a term of more than one year with a scheduled repayment period. They are generally used to finance the purchase of major assets such as buildings, land, machinery, equipment and computers.
- Private sector financing
- Canada Business provides information about the many types of financing available.
Financial institutions in Canada usually take collateral security on loans they have granted. In Alberta’s common law practices, property can be subdivided in two main categories:
- Personal property (movables) includes consumer items such cars, personal items and industrial or farming equipment.
- Real property (immovables) includes land and items that are permanently attached to it, such as buildings and real estate.
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Date Updated: Fri, 20 Jul 2012 11:48:27