A type of capital that is financed by borrowed funds (debt). It is a form of financing that allows an entity to raise funds by borrowing money from the public (e.g., creditors or investors). As a borrower or seeker of external sources of funds, an entity must repay the borrowed amount (the debt) along with interest over a specific period. Debt financing is a source of short- to long-term financing that a business taps into in order to finance its operations (usually for growth purposes).

Debt financing is the case where an entity obtains capital (from external sources) without selling portions of its equity or ownership. Debt financing involves using a security of the entire entity as collateral to obtain the amount of debt from investors, who simply issue a debenture against the debt.

Debt financing entails that the investors are paid interest for their investment. At the same time, these investors who hold a security (the debenture), are creditors of the entity, but have no say in the management of its operations or general affairs (just as opposed to holders of equity capital, i.e., the owners or equity holders).

Debt financing is also known as debt capital.