is it useful to take loan and credit to fund your business, especially in the first...

is it useful to take loan and credit to fund your business, especially in the first phase of starting your business

Expert Solution

No, it is not useful to take a loan and credit to fund the business in the first phase of starting the business because-

A.debt capital would lead to a cost of financial distress and that could lead to the bankruptcy of the company

B. Debt capital are often associated with the fixed rate of payment and new companies cannot make regular uniform income at the initial stages of business

C. Debt capital always has a lot of covenants and they would not allow the business to take more risk so it would not help the company in growth and expansion

D.they are always trying to interfere into the regular business of the company and hence it would not helpful in growth and expansion at initial stages

E.debt financing will also be needing collateral assets and this will be leading to to pledging of the Asset at the initial stages of business.

These factors will contribute to to decide against using of the debt capital in initial stages of startups.

jeff jeffy answered 1 year ago

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