Debt

Money lent that must be repaid with interest, regardless of how the borrower's business or asset performs.

Example

A bond is you lending money to a government or company; a mortgage is a bank lending money to you.

Important

Debt has a fixed, contractual return, the interest rate, unless the borrower defaults - it does not share in the upside the way equity does.

Related terms

  • Equity — Ownership in a company or asset - a claim on whatever is left after debts, and on any growth in value.
  • Creditor — Someone who has lent money and is owed repayment, ranked ahead of equity holders if the borrower runs into trouble.

Lessons that explain it

  • A convertible note is a loan that usually becomes shares, at the better of two prices — A convertible note is debt that converts into equity at a future round, typically at the lower of a discounted price or a capped price, with interest added to the amount converting. (12 min)
  • Equity versus debt — Own a piece of something, or lend it money. The two sit at opposite ends of every risk-and-reward trade in investing. (10 min)

All 578 terms in the Investing glossary