What are the advantages and disadvantages of loans?

• A. Advantages - there is no obligation to share profits or ownership; Disadvantages - Money must be paid back regardless of success; the risk of losing collateral.
• B. Advantages - loans carry no risk; Disadvantages - profits are shared automatically.
• C. Advantages include no obligation to share profits; Disadvantages - Money must be paid back regardless of success; risk of losing collateral.
• D. Advantages - you own the project outright; Disadvantages - none.

Answer: (C)

Loans are a form of debt financing that lets you raise money without giving up ownership. The key advantage is you don’t have to share profits or ownership with investors, so you retain control of the project. The main drawbacks are a fixed obligation to repay the loan regardless of how the project performs and the potential risk to collateral if the loan is secured. In practice, you also face interest costs and possible covenants that affect cash flow and operational flexibility. This is why the best description emphasizes no obligation to share profits, plus the mandatory repayment and collateral risk.