The Interest Tax Shield refers to the tax savings a company gains from the deductibility of interest expenses on debt. Since interest payments reduce taxable income, they lower the total amount of taxes owed. This advantage makes debt financing an appealing option for businesses, as it provides a direct financial benefit through tax savings. In addition, businesses may consider a Tax advance to access funds while waiting for the tax savings from the interest tax shield to be realized, improving cash flow in the short term.
