This section is from the book "Money And Investments", by Montgomery Rollins. Also available from Amazon: Money and Investments.
Converting debts - not bonded - of various amounts and maturities, or a debt now or soon due, into a unified form, usually with a fixed rate of interest, maturity, etc. As an example, imagine a city to have outstanding debts in the form of notes which fall due from time to time, and which the city has to renew or extend, and which it appears unable, from its resources, to pay off for a term of years. By the method of renewing, from time to time, excessive rates of interest are often paid, and, in the long run, it is an expensive way of borrowing. By the issuing of bonds, at a favourable opportunity, money may be obtained at a lower rate of interest, and a saving made to the city. The selling of bonds in this case to pay off the notes is called "funding." Unless the expenses incurred in the process of "funding" are included as part of the new issue, the latter sold at a discount, or a premium (or bonus) paid to retire the former debt, the "funding" issue should be equal in amount to the indebtedness "funded." The habit is to issue bonds to "fund " a debt, but issuing stock or any more or less permanent kind of security to provide for floating indebtedness is, to all intents and purposes, " funding."