Debt Financing happens when a company sells fixed income products to raise capital. These fixed income products are also referred to as debt instruments. Fixed income products include bonds, bills or notes. Debt Financing is a way to raise working capital for the business, just like Equity Financing. However, unlike Equity Financing, Debt Financing creates a debt – also called Principal – that you will have to pay back. Everyone who buys the debt instruments becomes an investor and is entitled to a repayment at a set time when the company promised to repay.