Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What does debt financing provide for a company?

1. Equity ownership

2. Funding to be repaid with interest

3. Tax benefits

4. Asset enhancement

The correct answer is: Funding to be repaid with interest

Debt financing provides funding to a company that must be repaid with interest, making this the correct choice. This type of financing generally comes from loans, bonds, or credit facilities, where the borrower receives a certain amount of money upfront and agrees to pay it back over time, along with interest. This arrangement allows companies to access capital for various purposes, such as expanding operations, purchasing equipment, or managing cash flow. While equity ownership is a feature of equity financing, debt financing does not provide ownership stakes in the company. Tax benefits can arise from the interest payments made on debt, as they may be tax-deductible, but that does not define debt financing itself. Asset enhancement can be a potential result of using funds obtained through debt financing to acquire assets, but it is not a direct result of the financing structure. Overall, the nature of debt financing revolves around obtaining funds with the obligation to repay them, including interest.