From the course: Foundations of Treasury Management
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Raising long-term capital
From the course: Foundations of Treasury Management
Raising long-term capital
- The long-term financing of a company is obtained through a combination of long-term borrowing and owner investment. Let's first talk about long-term borrowing. The most common type of long-term borrowing is an ordinary long-term loan negotiated with a bank or for larger loans, with a group of banks called a consortium. This is called private debt. An alternate way to borrow on a long-term basis is through issuing bonds. The bond purchaser receives the bond in exchange for paying cash to the company that issues the bond. Bonds are called public debt. The issuance of bonds or borrowing through bank loans may be preferred over investment by new owners for the following reasons. Present owners remain in control of the corporation. Lenders do not have ownership rights. Interest on bonds and loans is a tax deductible expense. Dividends to owners are not tax deductible. Current market rates of interest may be favorable.…
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