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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