Advantages Of Debt Financing For Your Business

Finance is the critical need for sustenance of any type of business. Read on to know advantages of debt financing for your business only at IIFL Finance!

16 Aug,2022 12:09 IST 79 views
Advantages Of Debt Financing For Your Business
Setting up a business can prove to be challenging. While you have planned the strategy right and determined the next step, you may face a financial boomerang. Besides the usual nitty-gritty of tapping a market, networking right, complying with the laws and risk management, there is a constant need for ample financing. If you are looking for business finance solutions or a loan for business, this is where debt financing can give you an edge.

What Is Debt Financing?

Debt financing is the traditional borrowing of money to grow your business. You have to repay this debt with additional interest. The debt financing process is unlike equity financing, which raises funds from investors who get a share in the business. To repay this loan, you can choose a monthly, yearly or term-end time frame. Debt finance could be secured or unsecured against underlying assets.

The most common examples of debt finance include credit cards, bank loans, mortgages, overdrafts, and equipment leasing. All payments against debt financing related interest, fees or charges can be filed as part of business income. Debt financing can be long-term or short-term.

Advantages Of Debt Financing

1. Business Ownership And Control

Unlike equity financing, when you apply for debt financing, you get to retain control over the business. You are not answerable to any investors or stakeholders. Even for secured loans, the worst-case scenario is where you lose the collateral for loan defaulting. Your business still stays safe.

2. Profits

The primary obligation for debt financing is paying on time. Debt financing differs from equity financing, wherein you must share business profit with equity investors.

3. Tax Benefits

Debt financing offers tax benefits since it is a type of business expense. You can claim a deduction of interest, charges and fees.

4. Access To Funds

Owing to far less compliances, the process of debt financing gives you access to funds effortlessly. Additionally, this type of business finance solution or loan for business allows you to establish your credit history.

5. Flexibility

Debt financing allows you to choose the tenure, repayment mode and amount you deem appropriate for your business. This way, you can plan your business expenses and repay the loan without facing financial woes.

6. Better Business Credit Score

Paying your EMIs on time results in an improved credit score. This way, you will be eligible for higher-value business loans when you plan for a business expansion or build a new empire.

7. Fuel Business Growth

Among the expenses involved in achieving business success includes using debt financing to buy inventory or equipment, hiring new workers and enhancing marketing. A business loan may be the avenue to facilitate smooth business operations and acquire profits consistently.

8. Eliminate Expensive Debt

Obtaining short-term cash advances during emergencies seems fitting in the given situation. However, the debt cycle is never ending when there are multiple such loans. This is where debt financing provides a much lesser burden against piling less debt owing to better interest rates, flexible tenures, and a bigger loan amount.

Take A Step In The Right Direction With IIFL Finance

With a slew of benefits, debt financing as a business finance solution or loan for business type is a low-risk option. Explore suitable business financing options from IIFL Finance and take your enterprise to new heights. With round-the-clock customer support, multiple branches and borrower-friendly interest rates, this is the right place for business financing.

FAQs

Q1. What are the primary types of debt financing?
Ans. The main types of long-term loans include business loans, equipment financing, and unsecured loans.

Q2. Are credit card loans part of debt financing?
Ans. Yes, loans based on credit cards are a part of debt financing.

Q3. How are the terms for debt financing set forth?
Ans. All terms related to debt financing are agreed upon by the parties in advance from the time of money issuance.

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