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Definition: Debt

It is an obligation of the borrower to the lender. When a lender (creditor) lends the money to the borrower (debtor), a debt is created. It should be repaid within a certain fixed period of time and it also entails a payment of interest along with the repayment of original amount.

Debt is one of the two ways of financing a company. The other way of financing is equity. A company needs to maintain an optimum capital structure by having the right mix of equity and debt.

Debt includes term loans, mortgages, syndicated loans, debentures, bonds etc.

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