Advantages of borrowed capital-
(a) Tax deductible: The interest paid on the borrowed fund is tax deductible, i.e. no tax is to be paid by the entrepreneur on interest.
(b) Convenient: The capital can be borrowed whenever needed by the enterprises. Many financial organisations are always ready to provide it. However, the amount lend by such organisations depend on the paying capacity of the enterprise.
(c) No dilution of control: Normally the financial organisations do not interfere in the matter of the enterprise. The entrepreneur is free to work even after borrowing.
(d) Reputation can be encased: Higher is the reputation of the enterprise in the society; higher are the chances of obtaining capital easily. Thus, the brand name of the enterprise can be utilized.
Limitations of borrowed capital-
(a) Fixed period: This capital is obtained for an agreed period of time. Also the interest and the principal amount are to be paid back in a given period of time.
(b) Increases obligations: The borrowed capital increases the obligation of the enterprise as the interest is to be paid periodically.
(c) Depends on security: Borrowed capital is obtained against security. Such securities if not available, then the enterprise is devoid of obtaining this capital.
