Which of the following statements about debt financing is false? Are you looking for an answer to this question? If yes then you are at the right place here we will give your answer in the most simple and accurate way so let’s start now. Debt financing is a method of raising capital for a business by borrowing from investors or lenders. The company agrees to repay the debt with interest over time.
Which of the following statements about debt financing is false?
A. Debt financing comes from banks or other commercial lenders.
B. When a bank gives a company a loan, they become partial owners of the company.
C. Companies often have to pay interest when they use debt financing.
D. It’s harder for startups to get debt financing.
The correct answer is B. When a bank gives a company a loan, they become partial owners of the company. This is false because debt financing does not entail giving up any ownership or control of the company. The company only promises to repay the loan and interest to the bank, but the bank has no say over how the company operates or how profits are distributed.
Read a Similar Question: Which Of The Following Statements About Gdp (Gross Domestic Product) Is True?
Explanation:
We have seen the correct answer for the question “which of the following statements about debt financing is false? “ is option B. When a bank gives a company a loan, they become partial owners of the company while the other options are true statements about debt financing.
A. Debt financing comes from banks or other commercial lenders:
This is correct because debt financing is when a company raises funds by selling debt instruments, such as bonds or loans, to investors or lenders. Companies frequently obtain debt financing from banks and other commercial lenders.
C. Companies often have to pay interest when they use debt financing:
This is true because debt financing requires paying interest and fees to investors or lenders. The interest rate paid on the debt represents the cost of borrowing for the company. The cost of debt varies according to the risk, term, and amount of debt.
D. It’s harder for startups to get debt financing:
This is correct, as debt financing typically requires the company to have a good credit history, consistent cash flow, and adequate collateral. Startups may not meet these requirements and may have difficulty obtaining debt financing. They may need to rely more on equity financing, which involves issuing stock to raise funds.
Now let’s see some frequently asked question related to our question:which of the following statements about debt financing is false?,
Some Common FAQs:
What is the disadvantage of debt financing?
The main disadvantage of debt financing is that interest must be paid to lenders, so the amount paid will exceed the amount borrowed.
What are the risks of debt financing?
The main disadvantage of debt financing is that business owners may face personal liability. If a company is unable to repay its debts, creditors may attempt to collect from the owners directly. This can jeopardize business owners’ personal assets, such as their homes or vehicles.
Why is debt financing so risky?
Debt financing can be riskier if you are not profitable because your lenders will apply loan pressure. However, equity financing can be risky if your investors expect you to make a good profit, as they frequently do.
