Debt vs. equity financing

As its name implies, debt financing involves borrowing money from a bank, individual, or company, with a promise to pay back the principle with interest. Any organization can make use of debt financing, spanning from a small single proprietorship to a large multinational. The owner of the business retains control over the organization and the only responsibility he or she has to the lender is to make the agreed-upon payments on time (McCormick 2012). These payments are also tax-deductible for the business, one of the attractions of debt financing (McCormick 2012). For this reason, it might be financially advantageous to use this form of financing, if interest rates are low enough. However, there are some drawbacks, namely the fact that when interest rates are high in relation to the business tax rate, the cost of borrowing may be prohibitive. Regardless of how well the business may...
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