The Finance Book, 2nd Edition

30 Debt finance

‘A small debt produces a debtor; a large one, an enemy.’

Publilius Syrus, former slave, writer

In a nutshell

Companies raise finance in one of two ways: debt or equity. Debt finance involves borrowing money that must be repaid with interest. The repayment date of the original amount borrowed (the principal) is normally fixed at the time of borrowing.

The borrower and the lender will agree upon:

• ■the interest rate
• ■the frequency and timing of payments
• ■whether or not interest can be ‘rolled up’ and repaid together with the principal sum.

Debt finance is typically obtained from banks, either in the form of an unsecured or secured loan. A secured loan (debenture) is an agreement that gives the lender security over the borrower’s ...