Fri. Jun 2nd, 2023

debt financing

Debt Financing Options For Small Businesses

Debt financing is one way to finance your business operations. This type of financing is beneficial to business owners because it allows them to retain control of their business. In addition, the debt you take out is tax-deductible, so it reduces your net obligation. It also allows business owners to better manage their budgets and financial planning. However, it does have some limitations. First of all, you must have a good credit rating.

Interest rates

Debt financing rates vary widely from company to company, depending on a variety of factors such as cash flow, projected growth, and credit score. For example, a business that borrows $100,000 may end up paying $4,000 to $15,000 in interest. In contrast, equity financing does not involve borrowing money, but instead involves selling shares of company stock. This type of financing can be advantageous for many types of small businesses, since it allows for faster approvals and is more flexible than other types of financing.

Cash flow

Debt financing is one of the most common ways for companies to raise money. Typically, a company will use a combination of debt and equity in order to finance its operations. As a result, the capital structure used by a company can have an impact on its cash flow statement. Here are a few key points to keep in mind when determining the right debt financing options for your business.

The first consideration to make is whether you need the money now or in the future. This decision will need to be weighed against the prospects of your business and the risks of an economic downturn. A company with too much long-term debt can become bankrupt quickly if the economy suffers a downturn.

Cash flow from debt financing activities differ from company to company, and will depend on a company’s capital structure, dividend policy, and debt terms. In general, positive cash flow from financing activities increases the company’s assets. On the other hand, negative cash flow from debt financing indicates a company is servicing debt, making dividend payments, or repurchasing shares.

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Besides debt financing activities, cash flow from investing activities is another important category to measure. This category includes the cash generated and lost in the business’ operations. Another area of cash flow to consider is the receivables and payables, which refer to the payments that a company owes to creditors. These payments can be collected today, or they could be owed in thirty, sixty, or ninety days down the road.


New regulations have limited the tax-deductibility of certain debt financing costs. Those expenses that exceed PLN 3 million or 30% of taxable EBITDA are not deductible. In addition, contributions to the Social Insurance Institution (ZUS) and unreported remuneration are not deductible.

The Bulgaria proposal aims to neutralize the debt-to-equity bias in corporate taxation and create a more fair tax system. The proposal would restrict tax-deductibility of debt-financed interests by imposing a 15% cap on the amount a company can deduct. It would apply to all taxpayers subject to Bulgarian corporate income tax. However, specific investment vehicles and institutions would be exempt. The new rules would take effect from 1 January 2024.

The draft amendments would also limit the tax-deductibility of residential property, which would adversely impact business entities that use residential properties. However, despite these disadvantages, the new legislation would clarify the current provisions regarding tax-deductibility of debt financing. It would be more complex to calculate deductible finance costs, but it would offer an opportunity to maximize tax efficiency for highly capitalized firms.

Another provision of the amended CIT regulations limits the tax-deductibility of debt financing costs incurred by related parties. For example, in M&A deals, taxpayers cannot recognise tax-deductible debt financing costs from related parties. In addition, the Reform also introduces a new concept of taxation of so-called ‘diverted profits’. In other words, the new tax legislation aims to limit the use of debt financing and leverage as a means of increasing profitability.

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Revolving loans

Consumers borrow money for many reasons, but revolving loans provide them with access to a line of credit. These loans can be used for both recurring expenses and bigger expenditures, such as a vacation or college education. With a revolving loan, borrowers can borrow money up to a predetermined limit and pay it back over time. As of March 2022, American consumers had $830 billion in revolving debt.

Revolving loans are different from installment loans, which require a fixed monthly payment. In addition, an installment loan can be set up on autopay, meaning you won’t be late. With revolving debt, your payments are based on a minimum amount every month and your balance can carry over, costing you money in interest.

Revolving loans for debt financing are designed to allow borrowers to draw upon their available funds. These loans can be used for a set period of time, such as one, three, or six months. They may be repaid within that time period and are therefore a useful form of short-term financing for small businesses.

A revolving loan facility offers a flexible source of funding and is often used in combination with conventional sources. It serves as a bridge between a borrower’s cash flow and the amount of financing he needs to expand his business. In some cases, a revolving loan facility can help a business finance 60 to 80 percent of a project’s funding.

Merchant cash advances

Merchant cash advances are a great way for a business to get the cash it needs without putting up any collateral. Unlike a traditional bank loan, they don’t have fixed monthly payments and can be easily repaid with the future sales generated by the business. Since merchant cash advances are unsecured, you can qualify for them even if you have a bad credit history. Another benefit of these loans is their flexibility. You can use them as much or as little as you need to, and the payments are automatically deducted from your credit card sales.

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While merchant cash advances can be helpful for businesses of all types, it is important to remember that they will have an impact on your cash flow. For example, merchant cash advances are best for businesses that have seasonal or variable cash flow. Seasonal businesses, such as ski resorts, beach resorts, restaurants, caterers, retail businesses, and home improvement, lawn and pool care, may benefit from this type of financing.

Another benefit of merchant cash advances is the ability to determine repayment schedules. The repayment terms range from three months to 18 months. However, when choosing a merchant cash advance, it is important to keep in mind that you will be charged a factor rate, which varies depending on your business risk. If your business is higher risk, the factor rate will be higher.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.