A promissory note is an example of which type of financing?

A promissory note is an example of which type of financing?

• A. Debt financing
• B. Equity financing
• C. Grants
• D. Leasing

Answer: (A)

Promissory notes represent funds borrowed that must be repaid, usually with interest. This creates a debt for the borrower and a claim for the lender, but it does not involve giving up any ownership in the business. That’s the hallmark of debt financing. In contrast, equity financing involves selling ownership shares, grants are funds given with no repayment obligation, and leasing is paying to use an asset rather than borrowing money to own it. So the note is a debt financing instrument because its core feature is borrowing and repayment.

Promissory notes represent funds borrowed that must be repaid, usually with interest. This creates a debt for the borrower and a claim for the lender, but it does not involve giving up any ownership in the business. That’s the hallmark of debt financing. In contrast, equity financing involves selling ownership shares, grants are funds given with no repayment obligation, and leasing is paying to use an asset rather than borrowing money to own it. So the note is a debt financing instrument because its core feature is borrowing and repayment.