What is debt financing and what are its characteristics?
Legal analysis: financing methods of enterprises can be divided into two categories: debt financing and equity financing. Debt financing, also known as bond financing, is a financing method for enterprises to use external funds for compensation. Including: bank loans, short-term bank financing (bills, accounts receivable, letters of credit, etc. ), short-term corporate financing bonds, corporate bonds, asset-backed medium-and long-term bond financing, financial leasing, government discount loans, intergovernmental loans, loans from world financial organizations, private equity funds, etc. For the funds obtained from debt financing, the enterprise should bear the interest of the funds first, and in addition, it should repay the principal of the funds to the bondholders after the loan expires. Financing has the following characteristics: 1. Debt financing is only to obtain the right to use funds, not ownership. The use of debt funds has a cost. The enterprise must pay interest, and the principal must be returned when the debt expires. 2. Debt financing can improve the return on capital of enterprise ownership funds and has financial leverage. 3. Compared with equity financing, debt financing may bring the problem of creditor's control and intervention in some specific circumstances, but generally it will not cause the problem of enterprise control. Legal basis: Article 2 of the Measures for the Administration of Overseas Investment of Enterprises The term "overseas investment" as mentioned in these Measures refers to the investment activities in which China people and domestic enterprises (hereinafter referred to as "investors") directly or through overseas enterprises controlled by them obtain overseas ownership, control, management and other related rights by investing in assets and rights or providing financing and guarantee.