Debt financing:

Debt financing: Debt financing means when a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay principal and interest on the debt

Under investment: An underinvestment problem is an agency problem between shareholders and debt holders where a leveraged company foregoes valuable investment opportunities because debt holders would capture a portion of the benefits of the project, leaving insufficient returns to shareholders

Debt overhang: Debt overhang refers to a debt burden so large that an entity cannot take on additional debt to finance future projects. The burden is so large that all earnings pay off existing debt rather than fund new investment projects, making the potential for defaulting higher. Debt overhangs can lead to underinvestment, which stunts growth, making recovery even more difficult.