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Essay / Research Paper Abstract
This 3 page paper aanalyzes various funding alternatives that can be used to support debt obligation, looking at loans, overdraft, revolving credit facilities and bonds. The bibliography cites 3 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEdebtfund.rtf
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Unformatted sample text from the term paper:
a way of supporting debt obligations, each have different characters and may result in differing advantages and disadvantages. Different sources of debt or funding options include the use of a
loan from a bank or other financial institution, the use of an overdraft facility or revolving loan facility, bonds, also known as debentures and the issuance of preference shares.
Loans may be seen as the most straightforward method of gaining capital. It may be one of the quickest routes to raising debt, and where a firm has a good
ongoing relationship with a bank or other financial institution the process may be simplified due to that existing relationship and the existing knowledge that the bank has regarding the company.
Raising capital this way can be cost effective, as the setup costs are relatively low. However, it can also be a very structured form of financing, with his inflexibility. A
repayment structure will be set out at the beginning of the loan which can be a constraint for the company. A potential disadvantage with the utilization of loans is the
need for security, especially for large loans. Security may come in the form of a mortgage or charge over goods or other assets, which may have an opportunity cost and
constrain way those assets may be used (Nellis and Parker, 2006). For example, if real estate is used to secure a loan it cannot be disposed of during the period
of the loan. There may also be restrictive terms and conditions attached to the loan, for example it is not unusual for banks to insist that the directors agreed to
covenant not to exceed a specific debt to equity ratio (Davies, 2005). This can reduce potential future lines of credit, and may also be negatively affected by poor trading conditions,
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