Which financing method typically incurs interest charges?

Debt financing typically incurs interest charges because it involves borrowing money that must be repaid over time. When a business opts for debt financing, it takes loans or issues bonds, which means it agrees to pay back the principal amount along with interest, a cost of borrowing. This interest is compensation for the lender taking the risk of lending money.

In contrast, equity financing involves raising capital by selling shares of the company. While shareholders may receive dividends, this does not constitute interest as it is not a mandatory payment and is contingent upon the company's profitability. Internal funding refers to using retained earnings or profits to finance operations or investments, which does not involve incurring additional debt or interest. Grants are funds provided by governments or organizations that do not require repayment, thus they also do not incur any interest charges.