Debentures are a type of long-term business debt that is not secured by any collateral. They are a way for a business to borrow in which the company agrees to repay the debt plus interest. Debentures are a type of bond or other debt instrument that is unsecured by collateral. They are usually issued by corporations to raise debt capital. Debentures are recorded as debt on the issuing companys balance sheet. Some of the key features of debentures include:
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Unsecured: Debentures have no collateral backing, so they must rely on the creditworthiness and reputation of the issuer.
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Interest: Debentures have set interest rates, payback periods, and regular interest payments like most other bonds.
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Types: Debentures can be secured or unsecured, registered or bearer, redeemable or irredeemable, and convertible or non-convertible.
Debentures are considered a more secure way to invest in a business than purchasing shares because the company must pay the interest on the debenture before any dividend payments can be made to the shareholders. Debentures may carry credit risk and default risk, and investors should pay careful attention to the creditworthiness of debenture issuers.
