Which type of financing requires repayment and is typically used by entrepreneurs?

Debt financing is a method of raising capital in which an entrepreneur borrows money with the obligation to repay it over time, usually with interest. This type of financing is commonly used by entrepreneurs to fund their startups or business ventures because it allows them to access funds without giving up ownership stake in the company.

When entrepreneurs utilize debt financing, they typically take out loans or issue bonds, and these funds must be repaid according to agreed-upon terms. This aspect of repayment distinguishes it from other types of financing. For example, venture capital and equity financing involve exchanging shares of ownership for capital, which does not require repayment. Likewise, government grants provide funds that do not require repayment but are often contingent on specific criteria or project goals.

Understanding the characteristics of debt financing is crucial for entrepreneurs as they weigh their options for funding, keeping in mind the importance of cash flow management and the obligation to service their debt.