Debt is a promise to repay a certain sum by a definite time. The promise is made in the form of an agreement, also called (in multilender deals) a facility. To raise capital via debt, a company can do two basic things:

• It can take out a loan from a creditor such as a commercial bank.
• It can sell a bond, note, or commercial paper to an investor such as a pension fund.

Whether debt capital is obtained by borrowing from a lender or by selling a debt security to an investor, interest is charged either in fixed or in variable rates. The interest rate(s) for  a typical loan like a standard term loan can be determined by the lender’s cost of funds as well as the following rates, listed from highest to lowest: the bank prime rate, the federal funds rate, and/or (in the US) the Secured Overnight Financing Rate, which has largely replaced the London Interbank Offered Rate (LIBOR).

Under normal circumstances, the value of debt can be realized through the rate of interest charged; a high rate of interest is advantageous to the lender, a lower rate advantageous to the borrower. Rates of interest vary greatly by size of loan and creditworthiness of the borrower.