Which of the following is a characteristic of debt financing?

Debt financing is characterized by legally binding repayment obligations. When a company borrows money, it enters into a contract with the lenders that clearly stipulates the terms of repayment, including the amount borrowed, the interest rate, and the repayment schedule. This creates an obligation for the borrower to make regular payments until the debt is fully repaid. The legal enforceability ensures that lenders have the right to pursue repayment if the borrowing entity fails to meet its obligations, thus providing a level of security to the lenders.

In contrast, ownership rights pertain to equity financing where investors gain ownership stakes in the company. Optional repayment schedules may imply flexibility not typically associated with debt; repayments are generally fixed and defined in the original agreement. Non-tax deductible interest is inaccurate as typically, the interest paid on debt can be tax-deductible, which is a significant tax advantage of using debt financing. Therefore, the nature of legally binding repayment obligations is a defining feature of debt financing.