What Are Debt Financing And Its Advantages?


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Sajid Majeed answered
The borrowed funds for the business needs are called the debt financing. The business may need s more funds for meeting the seasonal needs and expansion of business. Therefore, the creditors, investors and financial institutions become the main source of debt financing.

Here are the following advantages of debit financing.
1. Full Utilization of Resources
In case of debt financing, the debtor will utilize every inch of land, money and energy because he has to pay the rate of interest and return the original amount.
2.Large Scale Business
It is also one of the advantages that large scale business can be started with the borrowed capital.
3. Short Term Needs
The owners provide finance on permanent basis. The ups and down in the business may demand short term needs. The debt financing is suitable to meet to seasonal demand and short term needs.

4. Tax Advantage
It also offers tax advantage as interest is deductible for income tax purposes.
5. Rate of Interest and Profit
The debit is secured by the assets of the business. The rate of interest is low but rate of Profit is high. Therefore, the owner earns more profit.Its all about debit financing and its benefits.

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