One significant disadvantage of bond financing is that bonds pay periodic interest and the repayment can create a financial burden. When a company issues bonds, it commits to make regular interest payments to bondholders until the bond matures. This obligation can strain a company’s cash flow, especially in times of financial hardship or economic downturns. Unlike equity financing, where dividends can be skipped during tough times, bond payments are mandatory. Failure to make these payments could lead to default, affecting the company’s creditworthiness and ability to raise funds in the future.
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