'Debt is the cheapest source of capital'

'Debt is the cheapest source of capital' - We can give comment on this statement from both lender and borrower point of view.

From Lender point of view :-

• Lenders feel secure because the obligation of bondholders meet before both preferred and common stockholders in case of company's liquidation.
• The interest against bonds must be paid to bondholders either the company makes profit or not.

From Borrower point of view :- 

• The main advantage of using debt instruments as a source of financing is the interest against debt instruments is tax deductible expenses. So the company can enjoy a tax reduction.
• The required rate of return of lenders is lower than other financing instruments. So the cost of debt or the cost of capital is lower for the company.
• Common stockholders can claim on the residual income of a company and have the right to interfere to the company's various internal matters but bondholders have not such right.