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Discuss the advantages and disadvantages of debt financing for entrepreneurial ventures?

Discuss the advantages and disadvantages of debt financing for entrepreneurial ventures?

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Answer #1

Advantages of debt financing are :

a. In this type of business, when the debt is been taken your only obligation is to repay it as per set criteria, while the lender does not have the right to make decisions or interfere in the operation of business as you are not obligated for it.

b. As debts and their interest, principle are the business expenses due to which tax deduction can be achieved for the business owner as during tax time such incomes are deducted from the business income and not the other expenses.

Disadvantages of debt financing are :

a. If the business does not succeed owner is still obliged to repay the loans even when the business gets into bankruptcy such lenders will claim the debt they have paid.

b. Interest rates for such financing is high, while the credit ratings are largely impacted as such debts are shown in the credit report of the company.

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