Debt Finance
Debt finance is a fixed return finance like the cost as interest is fixed on the par value as face value of debt. This is ideal to require if there's a strong equity base. It is raised from external causes to qualifying companies and is obtainable in limited quantities. It is limited to as:
i) Value of safety.
ii) Liquidity situation in a specified country. It is ideal for companies whereas gearing permits them to raise more debt and so gearing level.
Categorization of Debt Finance
Loan finance - this is a common form of debt and is available in different terms generally short term. Medium term loans vary from 2 - 5 years. Long-term loans vary from 6 years and above
The terms are depend and relative on the borrower. This finance is requires on the source of Matching approach that is matching the economic life of the project to the term of the loan. It is prudent to use short-term loans for short-term ventures that are whether a venture is to last 4 years generating returns; it is prudent to raise a loan of 4 years maturity time.