Relying too heavily on debt can increase the interest rate that a company must pay on its debt.
Debt financing definition. Debt financing is the practice of a business borrowing money with the intention of repaying it with interest at a later time. It could take the form of an unsecured loan or a secured loan. A business will take out a loan to pay for working capital or an acquisition.
A borrower's potential failure to make required payments poses a credit risk, increasing the likelihood of a debt default. In the first instance, the risk is on the lender, who runs the danger of losing the principal and interest as well as of disrupting cash flows and incurring higher collection expenses. A partial or whole loss may have occurred.
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