What is referred to as debt finance?

Debt finance refers to the process of borrowing money from external sources, such as banks or other financial institutions, with the obligation to repay the amount borrowed, along with any interest, over time. This type of financing is crucial for businesses that need capital for various purposes, such as expanding operations, purchasing equipment, or covering operating expenses. The key characteristic is that it involves an obligation to repay, usually with interest, distinguishing debt finance from other forms of funding.

In contrast, other choices highlight different financing sources: income from sales pertains to revenue generation, which is not associated with borrowing. Funds generated from reinvested profits refer to internal financing, where businesses use their own earnings rather than seeking outside debt. The sale of equity involves raising capital by selling shares of ownership in the company, which is fundamentally different from debt, as it does not require repayment and does not incur interest. Hence, debt finance is specifically defined as the borrowing from external sources, making this choice the correct representation of what debt finance is.