The amounts of money (funding) that an issuer raises through the sale of long-term securities. It represents part of an entity’s capital that is raised through borrowing. This debt is funded by interest payments made by the borrowing entity (issuer of debt) over its term. Funded debt is an entity’s debt that matures in more than 12 months.
As funded debt forms part of an entity’s capital, it bears specific similarities to an entity’s equity. Both are funded in the sense that payment is made to their respective holders (debt holders, equity holders) as a compensation for the funding provided. However, such payment is contractual and clearly determined in the case of funded debt (in which case, it is known as interest payment), unlike payment to equity holders which usually take the form of dividends (profit distribution) as decided by management under regular policies, time to time.
A funded debt is also referred to as a long-term debt.
Comments