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.