Question

1) list five differences between a commercial loan and an investment security.

2) which carries the lower rate of interest?

3) describe the difference between general obligation and revenue obligation municipal securities

Answer 1

1.

S No	Commercial Loan	Investment Securtiy
1	A loan is the act of giving money, property or other material goods to another party in exchange for future repayment of the principal amount along with interest or other finance charges.	An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future.
2	A loan may be for a specific, one-time amount or can be available as an open-ended line of credit up to a specified limit or ceiling amount.	Investors have equity in the business, people who are interested in the business succeeding and will help you in this goal.
3	If the business fails, you still have to pay back the loan in full, plus interest.	Repayment terms are more flexible than that of business loans. If the business fails, you typically don't have to pay back investors (in the absence of any fraud, of course).
4	Managing your finances for loan repayment is easier than accounting for profits with an equity investor. With a loan, you will have regular monthly payments for a fixed period.	You may lose full control over the direction or day to day operations of your business. Investors may want to be part of the board of directors and oversee operations.
5	The lender doesn't get any portion of your profits or say in the business.	You may have to share a larger portion of your profits with equity investors.

2.

If your business plan projects potentially large growth, equity investors may be attractive for their lenient repayment terms, low risk (they won't sue you unless you defraud them), and business acumen.

On the other hand, if you project modest growth (i.e., you aren't planning on running a large business enterprise) or want complete autonomy in making business decisions, a loan might be better for you.

3.General obligation bonds, also called GOs, are backed by the “full faith and credit” of the issuer, with no obligation specific to repay considering the source of funds. Revenue bonds is a type muni bond that is backed by the revenue generated by a specific project being financed by the bond issue.