Debt financing means to borrow funds or to arrange for investments from external sources. Large scale businesses and organizations are not able to run all their affairs from their own capital so it is usual for them to take loans. The most prevalent example of this type of finance is the loans taken from banks. The amount of the loan is to be repaid in agreed installments along with interest at a specified rate.
Merits of Debt Finance:
Following are the merits of debt finance:
(i) Scope for Expansion: Debt financing allows business to expand its operations. New branches can be opened in other cities and countries. New lines of business can be adopted to increase revenues. The easy availability of credit encourages entrepreneur to take new risks and float new products. It also enables businessmen to increase the scale of their operations and to upgrade their products in time.… Read More