DEBT FINANCING

In order for the hospital to gain assets like equipment and infrastructures, it needs to acquire

capital or money. The two most common sources of financing are debt and equity financing. In

debt financing, a company sells fixed income products, such as bonds, bills, or notes, to investors

to obtain the capital needed to grow and expand its operations. When a company issues a bond,

the investors that purchase the bond are lenders who are either retail or institutional investors that

provide the company with debt financing. The amount of the investment loan, referred to as the

principal, must be paid back at some agreed date in the future. In categorizing debt by maturity,

long-term debt has a maturity of greater than one year. It is commonly used in funding large

projects and in permanent or long debt financing needs. Short-term debt, on the other hand, is

defined as having maturity of one year or less. Because of its limiting terms and associated risks,

it is usually used in small and short-term funding. In order to borrow money to a bank or a firm,

the company must maintain a specific credit rating to determine its financial capacity to pay it

debt. If a company wants to increase its credit rating, it can opt for a credit enhancement or bond

insurance.

From this discussion, I realized that debt financing, when handled properly, if very

important in growing and expanding the company’s operations. Debt can be cost-effective,

providing businesses with the funds to stock up on inventory, hire additional employees, and

purchase real estate or much-needed equipment. With the availability of various options in debt

financing, the business can choose terms that are fit to its projected targets and are low in interest

rate.