Limitations of Debt financing
- Restrictive imposed by debt covenants
- It will result in high bankruptcy and agency costs leading to collapse of the firms
- Restrictions imposed by articles of association
- Availability of quality assets to be used as a collateral to secure debt capital
- Availability of cash to repay interest and principal at maturity
- Gradual increase in cost of debt and cost of equity as gearing increases which increases
financial risk
- It will lead to poor credit rating hence inability to secure new capital
marto answered the question on February 12, 2019 at 05:40
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