Corporate Finance Solutions: Bonds, Loans, and Leasing

Key Business Financing Methods

Bond Issuance (Borrowing)

When a company needs large sums of money, it can obtain a loan. This type of loan is a form of financing typically reserved for large companies. To arrange it, the company divides the total money needed into small, equal amounts and issues securities, such as debentures or bonds. These obligations are offered to the general public, so investors who buy them become creditors of the company. They acquire the right to receive interest and the repayment of the principal amount at agreed-upon times. The company receives funds in exchange for delivering these bond securities, which constitute an acknowledgment of debt. Normally, these loans last for more than 5 years, with partial repayments often made during the loan's term. Companies issuing debt offer various incentives, such as an attractive interest rate.

Credits for Fixed Asset Acquisitions

When small and medium-sized enterprises (SMEs) need financial resources, they can do so by:

• Approaching financial institutions to borrow money, formalized as medium and long-term loans.
• Negotiating directly with equipment suppliers.

The high cost of these assets requires large outlays of cash that are not always available. The loans requested are similar to commercial credit from suppliers but have a longer duration. These credits are often formalized in bills of exchange to provide greater guarantees for the operation.

The Leasing Contract

A leasing contract is a lease where the lessor rents an asset to a company (the lessee), which agrees to pay installments for the rental. It includes the possibility of purchasing the asset at the end of the period. This is a form of medium and long-term financing.

Leasing Modalities

• Financial Leasing: A leasing company buys the asset from the manufacturer and leases it to the firm. The lessee is required to pay the rent during the life of the contract and cannot terminate it unilaterally.
• Operating Leasing: The lessor is usually the manufacturer or distributor of the asset and is also responsible for its maintenance. The contract can be canceled by the lessee upon renewal. Its main drawback is its high cost.