Debt Financing

Debt financing involves raising capital by borrowing funds that must be repaid with interest over time. It can take various forms, including loans, bonds, and credit lines. Debt financing allows businesses to access funds without diluting ownership.

Common Sources:

• Commercial banks

• Development banks (e.g., Emirates Development Bank)

• Corporate bond issuance

• Private lenders

Advantages:

• No ownership dilution.

• Interest is tax-deductible in many jurisdictions.

• Predictable repayment schedules.

Risks:

• Regular repayment obligations.

• Potential breach of covenants.

• Impacts credit ratings if mismanaged.

Example:

A UAE-based e-commerce startup secures AED 5M in debt financing from a local bank with a 6% interest rate and a 5-year term to expand warehousing operations.