Question

why do companies for huge financial needs go to the bond market? please type your answer or print

Answer 1

When companies need to raise money, issuing bonds is one way to do it. A bond is similar to a loan between an investor and a corporation. The investor agrees to give the corporation a specific amount of money for a specific period of time in exchange for periodic interest payments at designated intervals. When the loan reaches its maturity date, the investor’s loan is repaid.

Companies with financial needs issue bonds due to the following reasons:

1. The interest rate companies pay bond investors is often less than the interest rate they would be required to pay to obtain a bank loan.
2. The company can borrow large sums of money at low interest rates thus increases their ability to invest in growth, infrastructure and other projects.
3. Freedom to operate as there are less restrictions as compared to those attached with Bank loans.
4. With bonds, companies that need to raise money can continue to issue new bonds as long as they can find investors willing to act as lenders. The issuance of new bonds has no effect on ownership of the company or how the company is operated.
5. Record keeping is simple, because all bondholders get the exact same deal with the same interest rate and maturity date