What are the Risks Associated with Debt Financing?
While debt financing has its advantages, it also comes with certain risks:
Repayment Obligation: Regardless of the business's financial situation, debt must be repaid on time to avoid default. Interest Costs: Over time, interest payments can add up, increasing the overall cost of the borrowed funds. Collateral Requirements: Lenders often require collateral, putting business assets at risk if the loan is not repaid. Impact on Credit Rating: Failure to meet debt obligations can negatively affect a company's credit rating, making future borrowing more difficult and expensive.