Long term funds-- Debentures & Term Loans

1. Long term funds
- DEBENTURES
- TERM LOANS
AKSHAYA K (2017201003)
AISHVARYAA U (2017201001)
SARASWATHI E (2017201045)
PRAGATHI (2017201037)
SWATHI LAKSHMI R (2017201050)
PRAVEEN KUMAR K(2017201038)
KANCHANA MALA K S (2017201061)
RAJKUMAR D (2017201044)
PRABAKAR R (2017201036)
MIN BOKKI (2017201062)

2. DEBENTURES

3. DEBENTURES
• Debenture Is A Medium To Long-term Debt Instrument
Used By Large Companies To Borrow Money, At A Fixed
Rate Of Interest.
• It Can Be Borrowed From The General Public By Issuing
Certificates For A Fixed Period Of Time And At A Fixed
Rate Of Interest
• Such A Loan Certificate Is Called A Debenture
• Debentures Are Offered To The Public For Subscription In
The Same Way As For Issue Of Equity Shares
• Debenture Is Issued Under The Common Seal Of The
Company Acknowledging The Receipt Of Money.

4. PURPOSES
 In corporate finance, a debenture is a medium to long-term debt
instrument used by large companies to borrow money, at a fixed rate of
interest
 The interest paid to them is a charge against profit in the company's
financial statements

5. Contd.
• When two or more companies amalgamate or one company absorb another
company
• When company has decided to undergo a process of reconstruction
• When preference shares or debentures are converted into equity shares.
• Under a scheme of nationalization when the shares of a company are taken
over by the government
• Shares are often pledged as security for raising loans
• When one company acquires majority of the shares of another company it is
necessary to value such shares
• The survivors of deceased person who gets some shares of company made by
will.
• To declare NAV by the finance or an Investment Trust Company.

6. FEATURES

7. Features Of Debentures
1. Fixed Rate Of Interest
2. Redeemed Only After A Given Period Of Time
3. Interest Payable Is A Charge Against Profit
4. No Voting Right
5. Interest Is Payable Even If It’s A Loss
6. May Be Secured Or Unsecured

8. Share VS Debenture
1. Shares are a part of the capital of the
company
2. Shares holders are members or owners of
the company
3. When recommended by the board dividend
could be declared to share holders
4. Shares do not carry on any charge
5. Shares have a restrictions issue at a
discount
6. Shareholders have voting rights
7. Dividend is payable when profits are there
8. No fixed dividend
1. Debentures constitute a loan.
2. Debenture holders are creditors
3. Fixed amount of interest in debentures paid before
dividend declaration
4. Debentures generally have a charge on the asset of the
company
5. There are no restrictions to issue at a discount
6. They don’t have any voting right
7. Interest is payable whether profits are there or not
8. Rate of interest is fixed.

9. TYPES OF
DEBENTURES

10. REDEMPTION
• REDEEMABLE
DEBENTURES
• IRREDEEMABLE
DEBENTURES
CONVERSION
• CONVERTIBLE
DEBENTURES
• NON
CONVERTIBLE
DEBENTURES
PRIORITY
• PREFERRED
DEBENTURES
• ORDINARY
DEBENTURES

11. -EQUITABLE
DEBENTURES
-LEGAL
DEBENTURES
STATUS
-SECURED
DEBENTURES
-UNSECURED
DEBENTURES
SECURTIY

12. • REGISTERED
DEBENTURES
• BEARER DEBENTURES
REGISTRATION
• ZERO COUPON RATE
• SPECIFIC RATECOUPON RATE

13. ADVANTAGES

14. ADVANTAGES
 Debenture are Preferred by Investors.
 Issue of debentures can raise more funds.
 Debenture are less investment risk.
 Raising of capital through debentures is less costly.
 Maintenance of Control.

15. CONT..
 Ability to trade on Equity.
 Remedy against Over Capitalization.
 Debenture are Reliable.
 Debentures are having a satisfactory market response.
 Useful for Conversion.

16. DISADVANTAGES

17. Disadvantages
 Obligatory Payments
 Financial Risk
 Cash Outflows
 Restricted Convenants

18. TERM LOAN

19.  Term loan is a part of debt financing
obtained from banks and financial
institutions.
 Term loans are repayable in periodic
installments.
 Such a type of loan is generally used for
financing of expansion, diversification and
modernization of projects

20. 1. Security:
Term loans are secured loans. Assets which are financed through term loans serve
as primary security and the other assets of the company serve as collateral
2. Obligation:
Interest payment and repayment of principal on term loans is obligatory on the
of the borrower. Whether the firm is earning a profit or not, term loans are
generally repayable over a period of 5 to 10 years in installments.
The basic features of term loan

21. 3. Interest:
Term loans carry a fixed rate of interest but this rate is negotiated between the
borrowers and lenders at the time of dispersing of loan.
4. Maturity:
As it is a source of medium-term financing, its maturity period lies between 5 to
years and repayment is made in installments.
5. Restrictive Covenants:
Besides asset security, the lender of the term loans imposes other restrictive
covenants to themselves. Lenders ask the borrowers to maintain a minimum
base, not to raise additional loans or to repay existing loans, etc.
6. Convertibility:
Term loans may be converted into equity at the option and according to the
and conditions laid down by the financial institutions.

22. SPECIALISED
INSTITUTIONS FOR
TERMS LOANS

23. SPECIALIZED INSTITUTIONS

24. Types Of Term Loans Offered By Specialized Institutions
 Intermediate-term Loan - An Intermediate-term Loan Runs Less Than Three Years, Is Paid In Monthly
Installments From A Company’s Cash Flow And May Have Balloon Payments. Repayment Is Tied To
The Useful Life Of The Asset Financed.
 Long-term Loan - A Long-term Loan Runs For Three To 25 Years, Is Collateralized By A Company’s Assets
And Requires Monthly Or Quarterly Payments From Profits Or Cash Flow.
 Maximum Loan Maturities Are Seven Years For Working Capital, 10 Years For Equipment And 25 Years
For Real Estate. A Loan Is Repaid With Monthly Payments Of Principal And Interest.

25. Banks Consider The Following "Five C's" When Making Decisions About
Term Loans:
Character: How Have You Managed Other Loans (Business And Personal)? What Is Your Business
Experience.
Credit Capacity: The Bank Will Conduct A Full Credit Analysis, Including A Detailed Review Of Financial
Statements And Personal Finances To Assess Your Ability To Repay.
Collateral: This Is The Primary Source Of Repayment. Expect The Bank To Want This Source To Be Larger
Than The Amount You're Borrowing.
Capital: The Bank Does Not Want To Be Left Holding The Bag. So What Assets Do You Own That Can Be
Quickly Turned Into Cash If Necessary? The Bank Wants To Know What You Own Outside Of The Business --
Bonds, Stocks Or Apartment Buildings -- That Might Be An Alternate Repayment Source.
Comfort/Confidence With The Business Plan: How Accurate Are The Revenue And Expense Projections?
Expect The Bank To Make A Detailed Judgment.

26. PROCEDURE TO
APPLY FOR TERM
LOANS

27. PROCEDURES ASSOCIATED WITH TERM
LOANS
Submission of
LoanApplication
Initial Processing
of Loan
Application
Appraisal of the
Proposed Project
Issue of Letter
of Sanction
Acceptance of
T&Cs
Execution of
LoanAgreement
Creation of
Security
Disbursement of
Loans
Monitoring

28. ADVANTAGES

29. Advantage of Term Loans
From Borrower point of view:
 Cheap : Cheaper source of medium term financing.
 Tax benefit :Interest payable on loan is tax deductible.
 Flexible : Term loans are negotiable between
borrowers and lenders.
 Control :Term loan represents debt financing the
interest of equity shareholders are not diluted.

30. From Lender Point of View
 Secured : Term loans provided by bank and
other financial institution against security.
 Regular income : The borrower has to pay
Interest and principal.
 Conversion : Financial institution may insist
borrower to convert term loan into equity.

31. DISADVANTAGES

32. 1. Interest on debt is permanent burden to the company. Company has to
pay the interest to bondholders or creditors at fixed rate whether
it earns profit or not. It is legally liable to pay interest on debt.
2. Debt usually has a fixed maturity date. Therefore, the financial officer
must make provision for repayment of debt.
3. Debt is the most risky source of long-term financing. Company must pay
interest and principal at specified time. Non-payment of interest and
principal on time take the company into bankruptcy.
LONG TERM DISADVANTAGES

33. 4. Debenture indentures may contain restrictive covenants which
may limit the company's operating flexibility in future.
5. Only large scale, creditworthy firm, whose assets are good for
collateral can raise capital from long-term debt.
LONG TERM DISADVANTAGES

34. THANK YOU 