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A debenture is essentially a long-term loan that a corporate or government raises from the public for capital requirements. For example, a government raising funds to construct roads for the public.

Companies use debentures as fixed-rate loans and pay fixed interest payments. However, the holders of the debenture have the option of holding the loan until maturity and receive the interest payments, or convert the loan into equity shares.

Like the owner's capital, interest is also payable on the principal amount of the debenture. The interest paid is regarded as an expense for the company and is deductible under Income Tax Act. Therefore, debentures are also known as loan capital because they are redeemable after a long period of time.

A loan must be paid back by a set date and must be secured against something of equal value. A debenture doesn't need to be taken out against something of equal value, simply something deemed sufficiently valuable, which is why they can be secured against something variable like inventory.

A debenture is a type of bond or other debt instrument that is unsecured by collateral. Since debentures have no collateral backing, they must rely on the creditworthiness and reputation of the issuer for support. Both corporations and governments frequently issue debentures to raise capital or funds.

Companies use debentures because they are a cheap way for them to borrow money. They have lower interest rates and longer repayment dates compared to other types of loans.

A debenture is a form of security that a Company grants to a lender in exchange for funding. The funding can be in any form, and most commonly it relates to a long-term funding facility, such as a loan granted to a company that is repayable over a period of time.