The document introduces various types of debt financing available to small businesses, including loans, bonds, and convertible debentures. It explains how debt financing works, the differences between debt and equity financing, factors considered in debt financing eligibility like credit ratings and collateral, and tips for applying for debt financing like comparing interest rates and checking prepayment terms. The document is published by LoanXpress, a company that provides corporate financing services.

1. www.loanXpress.com
Introduction to
Debt Financing

2. 2www.loanXpress.co
m
August 2016
Index
No. Description Page No
1. Debt Financing or Borrowed Fund 3
2. Difference between Debt Financing and Equity Financing 4
3. Interest rate on Debt Financing 5
4. Eligibility for Debt Financing 6
5. Applying for debt Financing 7

3. 3www.loanXpress.co
m
August 2016
Debt Financing or Borrowed Fund
Debt financing means borrowing
money and not giving up
ownership.
Debt financing often comes with
strict conditions or covenants in
addition to having to pay interest
and principal at specified dates.
Debt financing is a strategy that
involves borrowing money from a
lender or investor with the
understanding that the full
amount will be repaid in the
future, usually with interest.
In contrast, equity financing in
which investors receive partial
ownership in the company in
exchange for their funds—does
not have to be repaid.
In most cases, debt financing
does not include any provision
for ownership of the company
(although some types of debt
are convertible to stock).
Small businesses that employ
debt financing accept a direct
obligation to repay the funds
within a certain period of time.
The several possible
methods of debt
financing available to
small businesses—
including private
placement of bonds,
convertible debentures
etc.
Debt financing allows
companies to make
investments without
having to commit
a lot of their own
capital.

4. 4www.loanXpress.co
m
August 2016
Difference between Debt Financing and Equity Financing
DEBT FINANCING
• Debt financing is when a company takes out a loan or issues a bond to raise capital.
• Companies can accept long-term financing to purchase facilities, equipment, or other long-
term assets, like a family takes out a mortgage loan to purchase a house or a loan to buy a
car.
EQUITY FINANCING
• With equity financing, a company gives investors shares in the company's ownership in
exchange for capital.
• Equity investors are owners of the company, which means they have significant upside
should the company prosper in the future.

5. 5www.loanXpress.co
m
August 2016
Interest rate on Debt Financing
The interest rate charged on the borrowed
funds reflects the level of risk that the
lender undertakes by providing the money.
For example, a lender might charge a
startup company a higher interest rate than
it would a company that had shown a profit
for several years.
Since lenders are paid off before owners in
the event of business liquidation, debt
financing entails less risk than equity
financing and thus usually commands a
lower return.
There is tax benefit when going for the debt
financing.

6. 6www.loanXpress.co
m
August 2016
Eligibility for Debt Financing
Most lenders will require a small business owner to prepare a loan proposal or
complete a loan application.
The lender will then evaluate the request by considering a variety of factors. For
example, the lender will examine the small business's credit rating and look for
evidence of its ability to repay the loan, in the form of past earnings or income
projections.
The lender will also inquire into the amount of equity in the business, as well as
whether management has sufficient experience and competence to run the
business effectively.
Finally, the lender will try to ascertain whether the small business can provide a
reasonable amount of collateral to secure the loan.

7. 7www.loanXpress.co
m
August 2016
Applying for Debt Financing
• It is very necessary to check the prepayment terms of
that bank. As it varies from bank-to-bank.
Understand Prepayment Terms
• It is always good to do your own loan research. What
deals other banks are offering before fixing any of your
loan deal.
Compare Interest Rates
• Do not go for such loans which takes away more than
half of your earnings. Calculate your spending, lifestyle
and other necessary expenses.
Check your Actual Affordability
• Tenure of the loan is a very important factor as you
have to pay your loan debts that long. Interest Rates
also gets affected by the loan tenure you've selected.
Duration of the Loan

8. 8www.loanXpress.co
m
August 2016
We would love to assist you
Get in Touch
Corporate Office:
Vermillion Finalytics Private Limited
4D, Siddhivinayak Chambers,
Gandhi Nagar,
Opp MIG Cricket Club,
Bandra (E),
Mumbai – 400 051
Telephone : (022) – 2655 8760
Tollfree : 1800 – 228 - 005
Email : info@LoanXpress.com
Website : www.LoanXpress.com