Debt financing is a way for businesses to raise money by borrowing funds from external sources, such as banks or investors. In this arrangement, the company agrees to pay back the borrowed amount, known as the principal, along with interest over a specified period. This method allows businesses to access capital without giving up ownership or control, making it an attractive option for many entrepreneurs. When a company opts for debt financing, it can use the funds for various purposes, such as expanding operations, purchasing equipment, or managing cash flow. However, it’s essential for businesses to manage their debt responsibly, as failing to repay can lead to financial difficulties and damage their credit rating.