Benefits & Disadvantages of Debt Financing
The ability to raise capital for businesses is imperative as it allows them to expand and purchase assets to increase profits. Businesses mostly have two ways of raising funds. Debt Financing Equity Financing Debt financing deals with borrowing money and repaying it with interest. It implies, when a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay the principal and interest on the debt. The various advantages and disadvantages of raising capital through debt financing are the following: Advantages Maintain company ownership : The management has complete control over the decisions made on behalf of the company and of choosing the board members. The only obligation a debtor has to the lender is to pay back the principal and interest. Tax deductions for interest paid : This is