Debt financing is the process by which a company, government, or individual raises capital by borrowing funds from external sources — such as banks, bond markets, NBFCs, or financial institutions — with a contractual obligation to repay the principal along with interest over a defined period, without diluting existing ownership. Debt financing instruments include term loans, working capital facilities, non-convertible debentures (NCDs), commercial paper, external commercial borrowings (ECBs), and government securities. Unlike equity financing, debt financing does not transfer ownership or voting rights but creates fixed financial obligations (interest and principal repayment) that must be met irrespective of business performance. The tax deductibility of interest payments (interest tax shield) makes debt an attractive, lower-cost source of capital compared to equity — up to a point, beyond which excessive leverage increases financial distress risk. For investors on Ventura Securities analysing corporate balance sheets, the composition, cost, tenor, and coverage ratios of a company's debt financing are fundamental inputs in assessing financial risk, creditworthiness, and sustainable capital structure.
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