BPA Advanced Accounting Practice Test 2025 - Free Advanced Accounting Practice Questions and Study Guide

The strategy that involves obtaining capital by borrowing money for a defined period is known as debt financing. Debt financing allows an individual or organization to raise funds by taking out loans, issuing bonds, or utilizing credit lines with the obligation to repay the borrowed amount, usually with interest, within a specified timeframe. This method is often used by companies to finance operations, investments, or expansions without giving up ownership stakes, as is the case with equity financing.

Debt financing can be advantageous because the interest payments on the borrowed funds may be tax-deductible, and, when managed properly, it can provide a means to leverage investments effectively. Companies often utilize this form of financing to maintain liquidity or fund operational growth while retaining full ownership control, differentiating it from alternative methods like equity financing or venture capital, which involve relinquishing ownership stakes for capital.