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Disadvantages of debt finance, Finance Basics
Disadvantages of Debt Finance
It is a conditional finance that is it is not invested along with any approval of lender.
Debt finance, whether used in excess may interrupt the companies decision creation process when gearing level is high, creditors will insist a say in the company that is and in the BOD, demand representation.
It is risky to use in a recession as that a condition may force the company into receivership with lack of funds to facility the loan.
It calls for securities that are highly marketable or negotiable thus limiting its availability.
It is only available for particular ventures and for a short term, that reduces its investment in strategic ventures.
The need of debt finance may lower the value of a share whether required excessively. It increases financial danger and required rate of return via shareholders hence reduce the value of shares.
Posted Date: 1/29/2013 4:35:37 AM | Location : United States
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