Debt – Definition

Debt – Definition

Debt: When a company borrows money from persons or any other financial institution that creates liability for the company is called debt. Simply, it is a sum of money that is owed or due.

This term is used by many corporations and individuals as a process of making huge purchases that they could not afford under usual conditions. It is a liability, meaning that the lender has a claim on a company’s assets.

Debt has the lowest cost because –

  • Debt holder gets more safety its interest is certain if the company become fall, the debt holder will get their money quickly.
  • Interest payments on debt are tax deductible.

Financial Debt can be different than other types of short term obligations. It means the amount of money which needs to be repaid back and financing means providing funds to be used in business activities. Companies facing complicated business odds might take on more debt for riskier ventures to “gamble” on a new product/strategy.