Question

What are the disadvantages of long-term notes for financing purposes?

1) Higher interest rates
2) Longer repayment period
3) Limited flexibility
4) Higher risk of default

Answer 1

The disadvantages of long-term notes for financing purposes include higher interest rates, longer repayment period, limited flexibility, and higher risk of default.

Step-by-step explanation:

The disadvantages of long-term notes for financing purposes include:

1. Higher interest rates: Long-term notes generally have higher interest rates compared to short-term loans, which can result in higher interest expenses for the borrower over time.
2. Longer repayment period: Long-term notes have a longer repayment period, which means that the borrower will need to make payments over an extended period, potentially tying up their financial resources.
3. Limited flexibility: Long-term notes often come with restrictive covenants that limit the borrower's flexibility in using their assets or making certain financial decisions.
4. Higher risk of default: The longer the repayment period, the higher the risk of default. Economic conditions or unforeseen events over a long period can impact the borrower's ability to repay the loan.