What is a key characteristic of long-term debt?

A key characteristic of long-term debt is that the lender does not receive ownership in the borrowing entity. Instead, long-term debt represents a borrowed amount that must be paid back over an extended period, usually exceeding one year. This type of financing allows businesses to raise capital for various purposes—such as investments, expansion, or maintaining operations—without relinquishing any control or ownership of the company.

In long-term debt agreements, the lender is primarily concerned with the repayment of the loan along with interest, rather than obtaining any equity stake in the company. This is fundamentally different from equity financing, where investors receive ownership shares in exchange for capital.

Considering the other options, ownership being transferred to the lender is characteristic of equity financing, not long-term debt. While long-term debt can have interest rates that may vary, not all long-term debts involve variable rates of return; many have fixed interest rates. Finally, while some long-term debt instruments can carry risk, it is not an inherent characteristic that applies universally across all long-term debt. Typically, long-term debt is viewed as a lower-risk financing option compared to equity, especially for established firms.