Over leveraging can pose significant risks to a business, including:
1. Cash Flow Issues: High debt repayments can strain a company’s cash flow, making it difficult to cover operational costs. 2. Credit Rating Impact: Excessive debt can adversely affect a company’s credit rating, making it more difficult to secure future financing. 3. Bankruptcy Risk: In extreme cases, over leveraging can lead to bankruptcy, especially if the business cannot service its debt during economic downturns. 4. Loss of Control: Heavy reliance on external financing can lead to loss of control over the company, as creditors may impose stringent conditions or take over management.