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Debt Funding Explained

Debt funding is a basic loan / credit debt, which requires a regular payment schedule of interest and principle. The basic forms of debt funding are:

  • Bank Loans
  • Credit Cards
  • Lines of Credit
  • Bonds
  • IOU's

This type of funding is usually what is used by most smaller businesses as it does not relinquish any control over the company and is generally easy to acquire.

The raising of debt capital (borrowing) is less complicated than raising equity capital by selling shares of stock. However, lenders to new businesses require very detailed information in addition to a business plan.

Basic information required in all complete loan packages:

  • Current financial statement
  • Profit and loss statements for three years
  • List of collateral offered as security
  • Amount of loan being requested and purpose of use
  • Pro forma (income and expense for first year of operation)
  • Further information may be required