What Are the Advantages of Debentures?


Quick Answer

According to eFinanceManagement, debentures offer a number of advantages to both their issuers and holders. Those who hold debentures are entitled to a fixed rate of stable income with guaranteed payments. The issuers of debentures protect their equity in a venture with attractive financing terms.

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Full Answer

Based on eFinanceMangement's analysis of the financial vehicle, debentures are frequently used as sources of long term financial funding. Issuing a debenture does not dilute the stake of a company's existing shareholders. Profits are also protected under this financial structure, whereby shareholders maintain their revenue flow. It is also a cheap way for companies and business owners to finance their operations and expansion initiatives, because debentures are shielded from tax obligations that make the cost of the financial structure comparably low to other forms of capital raising.

According to eFinanceManagement, the structure assumes that the company or business has a profit margin at a level to meet the debt payment of the debenture. Those who invest in debentures receive consistent income from their holdings with attractive tax implications. In addition, this structure tends to compel entrepreneurs and other business owners to carefully manage their ventures, because the interest obligations are fixed regardless of profits realized during each financial term.

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