What characterizes debt financing?

Debt financing is characterized by the process of borrowing money, typically through loans, with the obligation to repay that amount along with interest over a specified time frame. This form of financing allows businesses to access funds without diluting ownership or equity. When a business opts for debt financing, it enters into a contractual agreement with a lender where funds are borrowed with the understanding that these funds will need to be paid back, adhering to the terms set forth in the loan agreement.

Other options describe various aspects that do not align with the nature of debt financing. For instance, giving up equity pertains to equity financing, where a business sells parts of ownership to raise funds. Additionally, the idea that debt financing does not require repayment is incorrect; all debt must indeed be repaid according to the terms of the borrowing agreement. Lastly, seeking donations from investors implies the transfer of funds without the expectation of repayment or equity, which does not describe debt financing either. Thus, option B clearly articulates the fundamental characteristic of debt financing in a way that aligns with standard financial principles.