Corporate Borrowing
Why borrow?
Start-up costs
Plant and equipment
Expansion
High operating costs etc
Why lend?
Profit
Business
Family connections
Ownership interest etc.
Debt options
Term Loan defined term, defined repayment schedule, particular purpose
• Balloon payment = instalments + the lump sum + keep product or don’t pay lump and give
product back. Land - employ people to build house - no income so need loan - pay back all of
the loan + interest at the end - balloon payment
Overdraft - short term, working capital
Bonds ( debenture stock; loan stock)
Units sold like shares on LSE etc.
Bond certificate issued
Comp keeps register of debenture holders
transfer by STF
not part of comps share cap
no cap maintenance rules
May be issued at a discount
no valuation of assets required issued for non-cash consideration
no restrictions on buy backs
Sources of finance
Bank
Director/shareholder
Personal contacts
Hedge funds
Venture capitalists - mixture of equity and loans .
Equity - IPO (Initial public offering, secondary issue)
Lender rights
Repayment of principal
Repayment of interest
Payment in priority to shareholders (equity investors) Payment while a company is a going
concern
No voting rights
Equity shareholders - return 10 - 12%- banks work on a much smaller notice
Lender Protection
Guarantees - directors, all indebtedness, on default of company. may be capped on
the amount of loan.
Security - mortgage (transfer of title, fixed charge (restricts dealing with asset),floating
Why borrow?
Start-up costs
Plant and equipment
Expansion
High operating costs etc
Why lend?
Profit
Business
Family connections
Ownership interest etc.
Debt options
Term Loan defined term, defined repayment schedule, particular purpose
• Balloon payment = instalments + the lump sum + keep product or don’t pay lump and give
product back. Land - employ people to build house - no income so need loan - pay back all of
the loan + interest at the end - balloon payment
Overdraft - short term, working capital
Bonds ( debenture stock; loan stock)
Units sold like shares on LSE etc.
Bond certificate issued
Comp keeps register of debenture holders
transfer by STF
not part of comps share cap
no cap maintenance rules
May be issued at a discount
no valuation of assets required issued for non-cash consideration
no restrictions on buy backs
Sources of finance
Bank
Director/shareholder
Personal contacts
Hedge funds
Venture capitalists - mixture of equity and loans .
Equity - IPO (Initial public offering, secondary issue)
Lender rights
Repayment of principal
Repayment of interest
Payment in priority to shareholders (equity investors) Payment while a company is a going
concern
No voting rights
Equity shareholders - return 10 - 12%- banks work on a much smaller notice
Lender Protection
Guarantees - directors, all indebtedness, on default of company. may be capped on
the amount of loan.
Security - mortgage (transfer of title, fixed charge (restricts dealing with asset),floating
