LONG TERM DEBT --> Strategies

Question 1

Mortgages

Answer 1

DEFINITION:
A loan that’s repaid over a no. of years
EXAMPLES:
- Purchase land or property
- Property asset becomes security for the loan
PROS: Most common loan
CONS: Long Repayment period

Question 2

Debentures

Answer 2

DEFINITION:
- Issued by large companies and invites individuals/organisations to invest
EXAMPLES:
- Trustee is appointed to monitor issuing business
- Individuals/organisations that lend funds hold the debentures
PROS: Large sums of capital are raised
CONS: Risky investment for investors; long term

Question 3

Unsecured Notes

Answer 3

DEFINITION:
- Issued by finance companies waiting to gain funds (Bonds)
PROS: None
CONS: Not secured; very high interest rates; risky

Question 4

Leasing

Answer 4

DEFINITION:
Businesses lease non-current assets. E.g. Cars, factory space, machinery, etc.
EXAMPLES:
Can re-lease, upgrade lease, or purchase item
PROS: Lease payments are usually tax deductible
CONS: Payments over a period of time