Why is debt the least expensive source of capital?

Debt is considered the least expensive source of capital primarily because interest payments on debt are tax-deductible, reducing the effective cost of borrowing. Additionally, lenders typically require lower returns compared to equity investors, as they face less risk; debt holders are prioritized in the capital structure during liquidation. Furthermore, businesses can often secure loans at lower interest rates due to established creditworthiness and stable cash flows, making debt an attractive financing option.