Question

Advantages of borrowed capital

Answer 1

One of the advantages of borrowed capital is that interest rate is low because the debts are secured by the assets of the business. With sufficient capital, the potential rate of the profit will be high. The profit rate is higher than the interest rate from debt. Another advantage is that the interest from the borrowed capital is considered as an expense. The interest from the debt is included as an expense which is a deduction from the income. Thus, the income will be lesser and the income tax will also be lowered.