Debt Financing_ Accounting for Liabilities

Debt Financing

The method through which companies raise funds by borrowing.

Three C's of Creditworthiness

Character, Capacity, and Collateral, which are used to assess the risk of lending.

Character

The borrower's track record in meeting financial obligations.

Capacity

The borrower's ability to repay debt, based on income and cash flow.

Collateral

An asset pledged by a borrower to secure a loan.

Overdraft

A banking service that allows an account holder to withdraw more money than exists in the account.

Lines of Credit

A preapproved limit of funds that a borrower can draw on as needed.

Fixed Interest Rate

An interest rate that remains constant throughout the term of a loan.

Floating Interest Rate

An interest rate that fluctuates based on market conditions.

Bond

A fixed income instrument representing a loan made by an investor to a borrower.

Coupon Rate

The interest rate that the bond issuer will pay to the bondholder.

Face Value

The amount paid to bondholders at maturity.

Convertible Bonds

Bonds that can be converted into a predetermined number of shares of the issuing company.

Zero Coupon Bonds

Bonds that do not pay periodic interest but are sold at a discount to their face value.

Debt Overleveraging

Taking on too much debt, leading to an unsustainable financial situation.

Creditworthiness

The assessment of a borrower's ability to repay debt.

Bankruptcy

A legal proceeding involving a person or business that is unable to repay outstanding debts.

Debt Consolidation

The process of combining multiple loans into a single loan with a lower interest rate.

Interest Rates

The cost of borrowing money, usually expressed as a percentage of the loan amount.

Economic Growth

An increase in the production of goods and services in an economy over time.

National Debt

The total amount of money that a country's government has borrowed.

Leverage

Using borrowed capital for (an investment), expecting the profits made to be greater than the interest payable.

Peer to Peer Lending

A method of debt financing that enables individuals to borrow and lend money without traditional financial institutions.

Crowdfunding

The practice of funding a project through small contributions from a large number of people.

Tax Deductible Interest

Interest payments on debt that can be deducted from a company's taxable income.