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If a company borrows money, it will give its creditor a document to evidence the existence and terms of the loan. This document is called a debenture. Under the debenture, the capital sum borrowed is repayable at a future date. During the period of the loan, the company has to pay interest to the creditor.

A debenture is a loan agreement in writing between a borrower and a lender that is registered at Companies House. It gives the lender security over the borrower's assets. Typically, a debenture is used by a bank, factoring company or invoice discounter to take security for their loans.

A company typically makes these scheduled debt interest payments before they pay stock dividends to shareholders. Debentures are advantageous for companies since they carry lower interest rates and longer repayment dates as compared to other types of loans and debt instruments.

Debentures are a debt instrument used by companies and government to issue the loan. The loan is issued to corporates based on their reputation at a fixed rate of interest.Companies use debentures when they need to borrow the money at a fixed rate of interest for its expansion.

Put simply, a debenture is the document that grants lenders a charge over a borrower's assets, giving them a means of collecting debt if the borrower defaults. Debentures are commonly used by traditional lenders, such as banks, when providing high-value funding to larger companies.

The major types of debentures are:Registered Debentures: Registered debentures are registered with the company.Bearer Debentures:Secured Debentures:Unsecured Debentures:Redeemable Debentures:Non-redeemable Debentures:Convertible Debentures:Non-convertible Debentures:More items...?Aug 6, 2018

The use of debentures can encourage long-term funding to grow a business. It is also cost-effective when compared with other forms of lending. Debentures usually provide a fixed rate of interest for the lender, and this has to be paid before any dividends are issued to shareholders.

Advantages and Disadvantages of DebenturesFinancing through them is less costly as compared to the cost of preference or equity capital as the interest payment on debentures is tax deductible. The company does not involve its profits in a debenture.

This standard form of debenture secures the obligations and liabilities of the borrower to the lender in connection with a loan by way a charge over real property and a floating charge over the present and future personal property of the borrower.

The risks associated with investing in debentures and unsecured notes include the following:Interest rate risk. The majority of debentures and unsecured notes have a fixed rate of interest and a fixed repayment of capital amount.Credit/default risk.Liquidity risk.Nov 24, 2003