Debenture is used by government and companies to issue the loan. Depending on the company's reputation, the loan is issued at fixed interest. When companies need to borrow some money to expand, they take debentures to help.
When firms need to raise money, bond issuance is one way to do it. A bond between an investor and a corporation functions as a loan. The investor agrees to give the corporation a specific amount of money in exchange for periodic interest payments at designated intervals for a specified period of time. When the loan reaches its maturity date, the loan is repaid to the investor.
Businesses can borrow from banks just like individuals, but issuing bonds is often a more attractive proposition. The interest rate companies pay bond investors are often smaller than the interest rate that they would have to pay to get a bank loan. Because the money paid out in interest detracts from corporate profits and businesses are in business to generate profits, minimizing the amount of interest payable to borrow money is an important consideration. It is one of the reasons why healthy businesses, which do not seem to need the money, often issue bonds when interest rates are extremely low.
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