CFM3200 - Understanding loan relationships: borrowing

Advantages and disadvantages of borrowing

The company may decide it prefers to borrow the money it needs. A company that borrows will have to repay the borrowing, and usually will also have to pay for the use of the money, perhaps in the form of interest or discount. This might be seen as disadvantageous.

The advantage of borrowing is its flexibility. If the company no longer needs the funds it can usually repay the debt. It can increase its borrowing without meeting complicated Companies Acts requirements. The cost of the borrowing might be tax deductible.