Entities operating in the real or financial economic sector often enter the bond market. Here they use a special tool to mobilize money, which has a number of significant advantages. Let us consider in more detail what are bonded loans.
General information
A bond is a security. It confirms the right of the owner to receive financial assets or property from the issuing entity.
A bond is a security that sets a specific date for the transfer of money. The subject who needs a loan issues a certain amount of them. It is called the issuer. Loan bonds allow you to:
- Get a significant amount of financial resources.
- Implement large-scale investment projects. At the same time, the invasion of bondholders in the management of financial and economic activities is excluded.
- Accumulate funds allocated from private investors.
- To receive financial resources from organizations for a sufficiently long period on good conditions, taking into account the state of the financial market.
Advantages over traditional lending
Entering the bond market gives many positive results. First of all, a loan will be more profitable from an economic point of view. Bonded loans are always cheaper than a regular loan. A significant difference lies in the timing of attracting investments. They exceed the period of the loan.
It is also important that the entity does not need to provide bond loans as collateral. The person interested in the loan is practically independent of the lender. This is due to the involvement of a large number of investors. The subject as a result gets the opportunity to accumulate a significant amount of investments. Bond loans not only allow an interested person to declare themselves, but also:
- Promote a positive credit history. If the entity properly fulfills its obligations, investors will subsequently require a minimum payment of their risks.
- Allows you to reduce the cost of emissions in the presence of competition between investors for the opportunity to participate in the transaction.
- It makes it possible to distribute risks. A wide range of investors excludes dependence on any of them. This means, in turn, that there is no risk of losing control of the company.
Another advantage worth noting is the amount of the loan. The minimum value of emissions should be 200-300 million rubles. A young company is unlikely to receive such a loan. Repayment of the loan can be carried out within 3-5 years.
Classification
Currently, economists provide corporate bonds. They are issued, respectively, by organizations, companies, other legal entities. This tool is used for subsequent financial support of the enterprise. Corporate bonds may be provided without collateral. This means that if there is a claim, there is no need to attract guarantors or collateral.
The period during which the loan is repaid may be more than a year. There are two more types of tools under consideration. One of them is government loans. In this case, the issuer is the Russian Federation. The investor, respectively, can be a legal entity or citizens. Government loans are used to solve some operational problems and to implement large-scale promising projects. This type of loan is voluntary. There are also municipal loans. Here, the issuer will be any administrative-territorial unit of the country. Accordingly, this tool is used by regional authorities to solve key issues at the level of a specific subject.
Coupon bonds
Loans are also classified according to the period of provision. The term of the loan will depend on various circumstances. For example, the necessary volume of legal schemes and preparatory measures for the issue and placement, the execution of a guarantee, etc. are of importance. A medium-term bond loan is formed for a period of 1 year to 5 years. Interest on it is usually paid twice a year. To provide a loan, an interested entity issues so-called coupon bonds. The period of their circulation may exceed 5 and reach 10 years. Such loans are popular with mutual fund investment funds.
The current situation is caused by a long period of debt coverage. During the established time period, an optimal balance is achieved between short-term loans and significant profitability of financial instruments used for a long time. Sometimes such loans are called notes. Coupon bonds are uncertificated. They are placed by issues.
Long-term bond loan
The term of circulation of such loans is 20-30 years. Long-term government bonds are called promissory notes. In the US, they are considered the most reliable. This is due to the fact that the guarantor for them is the government. Long-term bonds are also called bonds. They have a long circulation period.
Federal loans
Government bonds are issued by the government. Accordingly, it acts as an issuer. In this case, the issue is carried out for a specific period, and a certain profitability is established. Such papers were distributed in the USSR. During the years of Soviet power, emissions were carried out not so much in financial terms as in physical terms. This position is explained by the fact that at that time money was regarded as a relic of capitalism, and during the communist period the government had other tasks and goals. As a result, grain, sugar and other loans were widely spread in the USSR. Currently, such financial instruments are almost never used. They are especially unpopular in countries with a volatile or complex economic situation.
Municipal loans
The loan agreement is concluded through the acquisition by the investor of issued bonds or other securities, allowing to exercise the right to receive from the debtor the financial resources provided to him on loan and fixed interest.
Municipal loans can be of two types. The first is general coverage bonds. They are provided by all or part of the budget, as well as the property of the issuing party. Such securities do not have a targeted investment nature. They are aimed at covering the budget deficit and are used to solve current problems. Such loans are related to short-term government loans. Their implementation is carried out according to specially created and debugged schemes.
Currently, experts note a growing interest of subjects in this financial instrument. The second type is targeted loans, which today occupy a leading position in the number of issued bonds. They are released for the implementation of a specific investment project. Repayment of the loan is carried out from the profit.
The most common currently are municipal targeted housing loans. Construction is carried out at the expense of the concentration of public funds through the issuance of securities. The main objectives of such emissions are:
- Search for opportunities to improve the quality of people's living conditions.
- Improving the mechanisms of promising and reliable investment in construction.
- Improving the quality of work.
- Reducing the cost of construction and housing.
Other types of loans
Domestic loans are debt instruments in the form of bonds issued in circulation in the country. Previously, they strictly corresponded to the emission methods adopted for such types of loans in world practice. In Russia, the issue of domestic bonds began, which were distributed between domestic companies.
Issue of external obligations is carried out in the maximum allowable amount of public debt. Its value is determined in the Federal Budget Act. These government bonds are issued in documentary form. They are designed for centralized storage. The holder can receive the value of the bond and accrued interest. The total issue volume is 1.5 billion dollars. The face value of the bond is 200 thousand dollars. Citizens and legal entities act as potential holders. Moreover, they can be both residents and non-residents of the country. Bonds are placed by private subscription and may be presented for early repayment, if this is indicated by the global certificates that issued them.
Release Features
The bond issue ensures maximum satisfaction of enterprise development plans for various periods, opening up new opportunities for attracting financial instruments on favorable terms. This is due to increased recognition of the organization and, accordingly, attracting investor interest.
The condition for the bond issue is a special provision in the agreement on the issue. Debt obligations are subject to certain requirements:
- The optimal loan amount should be more than 200 million rubles.
- The value of the issuer's net assets must exceed the size of its authorized capital.
- The company should have a real project, the implementation of which will receive the received investments.
- Annual loan payments must correspond to or be less than the amount of accounting profit for the same period before the mandatory payments to the budget.
Accommodation and acquisition
Bonds are issued on the primary market. Here they are implemented. If they are sold, they can be released to the secondary market. This implementation explains their key virtue - liquidity. Under current law, the initial placement of loans can be from 3 months. up to a year. After registration, no more than 1 year should pass. In practice, the initial placement is carried out in a few days. To purchase a bond, you need to study the entire trading system in the financial market. Their main volume is available on the Moscow Currency Exchange. On stock exchanges are circulating bonds of banks. Among them may be commercial and government agencies. For example, you can purchase bonds of Sberbank. This financial organization carries out the issuance of debt obligations, conducts certain operations on them, ensuring an increase in the revenue parts of the budgets of different regions, and, accordingly, participating in the economic development of the country.
You can buy Sberbank bonds at any of its branches or through the official website. However, experts recommend studying quotes before purchasing. The essence of investing is to buy as cheaply as possible, then to sell at the highest possible price. Bonds can be sold only after a certain period of time, which is indicated in them. In this regard, the potential investor should be able to calculate the profitability of the loan. Sberbank bonds are usually issued for 1-5 years. With proper calculation, the holder can get quite a solid profit.
It should be remembered that Sberbank is an institution in which more than 50% of the capital is supported by the government. As practice shows, capitalization indicators increase annually. In addition, the size of capital and the value of repayment of loans and credits are constantly growing. This, in turn, provides an increase in the bank reserve, which allows the organization to issue and place bonds.
Price
The cost of placing a loan is set in accordance with two factors. It depends on the credit history and solvency of the issuer. A decrease in loan prices is facilitated by the expansion of secondary sites and increased investor confidence.
A positive credit history not only creates a good reputation of the issuer, but also ensures a reduction in the cost of providing loans in the future. The cost of a loan is determined before tax by calculating the internal rate of return (or income at the time of payment) from the financial income of the bond.
A loan as a fundraising tool
A bond loan allows the issuer to independently indicate its parameters. In particular, we are talking about the volume of the issue, interest rates, conditions and period of circulation, etc. Bonds contribute to improving the system of mutual settlements, developing the structure of the issuer's accounts payable and receivable. Meanwhile, in spite of the obvious advantages of this fundraising tool, it should be remembered that such loans act as quite tough debt obligations. By issuing bonds, the interested party exposes itself to certain risks. First of all, they are associated with the likely failure of the whole event. Therefore, the fact of the issue of securities does not guarantee their placement on the terms indicated by the issuer.
Loan as a source of financing
This role of bonded loans in developed countries is quite large. Over the past 10 years of the 20th century, more than half of private investments accounted for the issuance of such obligations, and the issue of shares was within 5%. Before placing bonds, the obligations and rights of interested parties, including holders, are specified in sufficient detail. This need is due to the absence in the regulatory legal acts of most countries of the full list of requirements governing the procedure for their issuance and implementation. The key limiting factor in the placement of bonds is the amount of ownership. The advantages of this tool as a source of funding include:
- The ability to attract funds from different investors. They can be including banks.
- The ability to attract small lenders. It is due to the low cost of the bond.
- The possibility of attributing the costs of servicing loans to the cost of production. This, in turn, allows you to reduce taxable profits.
- Ability to extend maturity.
- Lower costs than issuing shares.
- Low risk. It ensures the involvement of certain groups of investors.
The positive side of this placement for enterprises is the ability to calculate the optimal yield of bonds during circulation. At the same time, the company can determine favorable interest rates on payments, attract significantly more investors. As a negative point, it is worth noting the likelihood of incomplete placement in the initial auction. In case of low demand, the bond yield will increase. Positive release conditions require certain actions. Negative, accordingly, limit activities.
