Debt financing does affect a company's credit rating and overall borrowing capacity. The statement that it does not affect credit rating is false according to established principles of credit management.

Debt financing involves borrowing funds that must be repaid in scheduled installments along with interest. This differentiates it from equity financing, where repayment is not required.

Regular debt payments are referred to as installments, which cover both the principal and the interest. Dividends are typically associated with profit sharing among shareholders, not debt repayment.

Collateral is an asset offered by the borrower as security for a loan. If the borrower defaults, the lender may seize the collateral to recoup the owed funds.

The notion that debt financing always causes financial instability is a misconception. When used wisely, debt can be a powerful tool for growth and may even stabilize a company's finances if managed properly.

One major advantage of debt financing is that interest payments are often tax-deductible, thereby reducing the effective cost of borrowing. This tax benefit distinguishes it from equity financing, where such deductions do not apply.

Leverage refers to the strategy of using borrowed money to boost the potential returns of an investment. However, increased leverage also magnifies potential losses, thereby raising overall risk.

A poor credit history signals to lenders that the borrower may have difficulty meeting repayment obligations, making it a significant negative factor. In contrast, a high credit score, low debt-to-income ratio, and stable employment history improve eligibility.

Debt financing increases financial risk because it imposes fixed repayment obligations irrespective of revenue fluctuations. This mandatory repayment schedule can negatively impact cash flow, especially during periods of economic downturn.

An amortization schedule breaks down each loan payment into portions that go toward the principal and the interest. This helps borrowers and lenders track how the debt is reduced over time.

The Interest Coverage Ratio assesses a company's ability to pay interest on its outstanding debt by comparing its earnings before interest and taxes to the interest expense. It is a key metric for evaluating financial stability regarding debt obligations.

A secured loan is one that is supported by collateral, which minimizes the lender's risk by providing assets that can be claimed if the borrower defaults. This typically results in lower interest rates compared to unsecured loans.

Businesses often favor debt financing when they aim to retain full ownership without diluting control. Although it requires repayment with interest, it allows existing owners to maintain their decision-making authority.

Debt financing can involve either fixed or variable interest rates, which play a critical role in determining the overall cost of the loan. Understanding these options is essential for effective financial planning and risk management.

It is a misconception that simply taking on more debt will automatically result in higher profits. In reality, excessive debt increases risk and can lead to significant financial challenges if returns do not surpass interest expenses.

Taking on additional debt increases financial leverage, which can magnify both gains and losses. This strategy elevates overall financial risk, making the company more vulnerable during economic downturns.

If the returns from an expansion exceed the cost of debt, leveraging through borrowing can boost the return on equity. Conversely, if the project underperforms, the fixed interest obligations may drag down ROE.

A comprehensive analysis of a loan includes an evaluation of the principal amount, interest rate, repayment term, and any associated fees. This approach gives a clearer picture of the total cost and impact on personal finances.

Negative amortization occurs when the payments made are insufficient to cover the interest, resulting in the unpaid interest being added to the principal balance. Over time, this causes the overall debt to increase instead of decrease.

For a risk-averse investor, one major concern is the dilution of ownership that can occur with equity financing. Preserving control is often prioritized, making the potential dilution associated with equity financing a significant risk.