CIMA F2 Syllabus A. Financing capital projects - Characteristics of long-term debt - Notes ^{6 / 13}

The providers of debt finance are not owners of the business.
The entity has an obligation to pay interest to the debt-holders, and to repay the principal.
On liquidation, the debt-holders would rank before any shareholders
Because debt-holders are taking less risk than ordinary shareholders, the expected return on debt is lower than the expected return on shares.
The cost of debt will be cheaper than ordinary or preference shares
because the interest is tax deductible (unlike preference or ordinary dividends).
If the entity has little or no existing debt finance
it may be easier to raise debt finance rather than equity finance, especially if the company is unquoted (ie cannot issue shares to the public).