Example of Bond Financing

The bond financing It is a form of long-term financing, in this type of financing when a company has a debt (requires cash to carry out its activities), it borrows from ordinary people or other companies, but it does not do it directly, it does it through bonds.

To obtain this loan, the company issues bonds, which are purchased by individuals. These bonds must meet some requirements: Be certified, pay the loan, pay interest, can be converted into shares, can have a purchase option, payment date and reissue.

These documents are generally endorsed or sold in the name of the buyer and few are made to the bearer.

There may be bonds of direct placement which are the bonds that are sold directly to a person or a company and are the bonds that can be converted into type “C” shares.

The common bonds or from public offerings, are generally sold by banks or commercial institutions.

Example of bond financing:

A company requires long-term assets, but it has no way of acquiring a mortgage loan or a direct loan with a banking institution; that is why it is given the task of issuing bonds in order to acquire sufficient capital for its activities.

After the issuance of bonds, the bank representing the company offers them to future buyers, as a medium or long-term investment.

The company issued two types of bonds, fixed bonds that have a medium yield and risk bonds, that have a high interest rate.

When the bonds are acquired, the company can carry out activities and investments that will allow it to pay these bonds together with the commission corresponding to the bank and the interests that correspond to the buyer.

If the bonds mature before the completion of the payment, they can be reissued or they can be converted into class “C” shares.