What is leveraged finance

[VirginiaWh]

I keep seeing the term what is leveraged finance in banking and private equity discussions, but I’m still not totally sure what it means. From what I understand, leveraged finance involves using a higher amount of debt to fund things like acquisitions, business expansions, or buyouts — usually when the borrower already has a lot of debt or higher risk. But how does leveraged finance actually work in real situations? Does it mean companies borrow more than they normally could using regular loans? And is it true that leveraged deals usually come with higher interest rates because of the risk?

 

[luca]

Leveraged finance entails financing acquisitions or innovations with a lot of borrowed capital, usually by riskier or already indebted financial establishments, lenders impose increased interest and greater conditions to recompense the increased risk.

 

[Leo]

Leveraged finance refers to the use of borrowed money (debt) to fund investments, business acquisitions, or growth strategies. Companies use high levels of debt such as leveraged loans or high-yield bonds when they want to raise capital without issuing more equity. This approach can increase potential returns but also increases financial risk because the company must meet interest and repayment obligations. Leveraged finance is common in private equity buyouts, mergers and acquisitions, and situations where businesses need significant funding quickly. The goal is to enhance business value, but careful risk management is essential due to the higher debt burden.

 

[Elisa]

Leveraged finance refers to using a high amount of borrowed money (leverage) to fund acquisitions, expansions, or other major business activities. It typically involves loans or high-yield bonds given to companies with higher risk, aiming for higher returns.