What are the advantages of debt financing?

Posted on Monday, January 4th, 2010 at 4:07 am    

Most firms need to raise capital for the purposes of either starting a business or taking on a new business project. In order to raise this capital, firms will typically use one of two types of financing.

The first is equity financing, whereby the firm raises capital through investors. In return, the investors will receive stock or equity in the firm. 

As an alternative, firms will also employ debt financing, in which the firms will raise capital by offering debt securities. In return, creditors will receive interest payments and repayment of the principal amount. 

One advantage of debt financing is that firms can deduct the interest payments from their tax returns. This deduction will result in a tax savings that will save the firm valuable cash. 

If your company has questions about its debt financing, contact the Des Moines business lawyers of LaMarca Law Group, P.C., at (877) 327-2600. 

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