A sinking fund is not a form of financing, but rather a means to accumulate the money necessary to pay debt as it matures. See the correct answer for a complete explanation.
A sinking fund does require a periodic payment, but the payment is to accumulate money to repay the face amount when the bond matures. It is not connected to the payment of bond issue costs.
A sinking fund does require a periodic payment, but the payment is to accumulate money to repay the face amount when the bond matures. It is not connected to the payment of bond interest costs.
When a bond has a sinking fund requirement, the issuer of the bonds is required to make periodic contributions to the fund. This fund will be used to repay the face amount of the bonds when the bonds mature. If there is a sinking fund requirement, the buyers of the bonds are more comfortable that the bonds will actually be repaid when they mature. This enables the issuing company to pay a slightly lower interest rate on the bonds because they are more secure.
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