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    3.1 Deb - Term Loan

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    Himanshu Dutta
    This document discusses long-term sources of finance for companies including debentures, bonds, and term loans. Debentures and bonds are long-term promissory notes issued to the public to raise capital, with debentures carrying a fixed interest rate and bonds possibly having a floating rate. Term loans are obtained directly from banks and financial institutions for over 5 years and used for expansion projects. Both debentures and term loans provide tax deductibility of interest but also have disadvantages like obligatory interest payments and restrictive covenants for companies.

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    3.1 Deb - Term Loan

    Uploaded by

    Himanshu Dutta
    25 views10 pages
    This document discusses long-term sources of finance for companies including debentures, bonds, and term loans. Debentures and bonds are long-term promissory notes issued to the public to raise capital, with debentures carrying a fixed interest rate and bonds possibly having a floating rate. Term loans are obtained directly from banks and financial institutions for over 5 years and used for expansion projects. Both debentures and term loans provide tax deductibility of interest but also have disadvantages like obligatory interest payments and restrictive covenants for companies.

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    3.1 Deb_Term Loan

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    This document discusses long-term sources of finance for companies including debentures, bonds, and term loans. Debentures and bonds are long-term promissory notes issued to the public to raise capital, with debentures carrying a fixed interest rate and bonds possibly having a floating rate. Term loans are obtained directly from banks and financial institutions for over 5 years and used for expansion projects. Both debentures and term loans provide tax deductibility of interest but also have disadvantages like obligatory interest payments and restrictive covenants for companies.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    25 views10 pages

    3.1 Deb - Term Loan

    Uploaded by

    Himanshu Dutta
    This document discusses long-term sources of finance for companies including debentures, bonds, and term loans. Debentures and bonds are long-term promissory notes issued to the public to raise capital, with debentures carrying a fixed interest rate and bonds possibly having a floating rate. Term loans are obtained directly from banks and financial institutions for over 5 years and used for expansion projects. Both debentures and term loans provide tax deductibility of interest but also have disadvantages like obligatory interest payments and restrictive covenants for companies.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 10

    Long- Term Sources of Finance

    Debentures and Bonds

    Long Term Promissory note to raise capital from the


    public
    The company stipulates the rate of interest and
    maturity
    Mostly Public companies issue bond
    Debenture and bonds are used interchangeably
    Debenture carries fixed rate of interest while bonds
    may have floating rate of interest
    Features of Debentures

    Interest Rate
    Credit Rating
    Maturity
    Redemption
    Sinking Fund
    Security
    Buy-back provision
    Claim on assets and income
    Indenture
    Yield
    Advantages of Debentures from Company’s view point

    Tax deductibility of interest


    Less Costly
    No Direct Control
    Reduced real obligation
    Fixed payment of interest
    Advantages of debentures from Investor’s view point:-
    Less Risky
    Secured
    Legal recourse available
    Fixed return
    Disadvantages of Debentures from Company’s view point

    Obligatory payment
    Increased risk
    Restrictive covenants

    Disadvantages of Debentures from Debenture holder’s


    view point
    Low return
    Types of Debenture

    Convertible
     Non convertibles Debentures (NCD)
     Fully Convertible Debentures (FCD)
     Partly convertible Debentures (PCD)
    Redeemable
     Redeemable Debentures
     Irredeemable debentures
    Participating debentures
    Deep Discount Bond
    Term Loan

    Term loan are obtained directly from the banks and


    financial institutions.
    Long term loans usually have more than 5 years
    maturity
    Used for large expansions, modernization or
    diversification projects
    Features of Term Loan

    Maturity
    Direct Negotiation
    Security :-
     Fixed Charge
     Floating Charge
    Restrictive Covenants
    Convertibility (loan into equity-Air India-2015)
    Repayment Schedule
    Advantages of Term loan

    Less costly
    Less time consuming
    Tax deductibility of interest
    Disadvantages of Term loan

    Restrictive Covenants

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