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Chapter 1

Debt Finance

3.1 Types of debt finance

Loans

Debt finance obtained from banks and other financial institutions are
often referred to as loans

Debentures/loan stock/ bonds

Debt finance obtained from other companies or organisations (e.g.
governments) can often be described as debentures. The entity
raising finance is said to have issued a debenture

(2) JS agrees to
repay interest
and capital

JS ltd issues AF Ltd buys
. debenture debenture
(1) JS sells

debenture for
lump sum

Debt finance requires the repayment of interest and capital at designated timings.
Debt carries a default risk which is not present with equity finance.

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