Debentures Btec business level 3 personal and business finance

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jakewatkins22
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anyone know what debentures are and what the benefits/drawbacks of them are
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TomR4
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(Original post by jakewatkins22)
anyone know what debentures are and what the benefits/drawbacks of them are
They are a long term source of finance, where the business receives a loan that they pay interest (normally fixed rate) on over a longer time period than other loans.
It is effectively a more reliable way for investors to invest in a business compared to buying shares, as the company is obliged to pay back the interest.

Advantages to the business would be that they have a longer time period to repay the loan, and the interest is generally lower and fixed rate. Along with this, they will receive investment without having to give away any equity in their company. They may also be easier to obtain than other loans/sources of finance as it is more secure for the investors.

The main negative is obviously the fact that the business will still need to pay interest on the loan and the longer time period of this repayment means that there will be more fluctuations and potential for risks for the business. Although it doesn't have to be repaid very quickly, due to the longer time period there is higher potential for recessions in the economy, or other financial problems from the business, and they will still have to repay the loan through all of this.
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