- General information
- Advantages over traditional lending
- Coupon bonds
- Long-term bond issue
- Federal loans
- Municipal loans
- Other types of loans
- Issue Features
- Placement and Acquisition
- Loan as a tool to raise funds
- Loan as a source of financing
- Negative sides
Entities operating in the real or financial economic sector quite often enter the bond market. Here they use a special tool for mobilizing money, which has a number of significant advantages. Let's take a closer look at what bonded loans are.
A bond is a security. It confirms the owner's right to receive funds or property from the issuing entity.
A bond is a security that sets a specific date for the transfer of money. An entity that needs a loan issues a certain amount of them. It is called the issuer. Loan bonds allow:
- Receive a significant amount of funds.
- Implement large-scale investment projects. This excludes the intrusion of bondholders into the management of financial and economic activities.
- Accumulate funds from private investors.
- Get financialresources from organizations for a sufficiently long period on good terms, taking into account the state of the financial market.
Advantages over traditional lending
Entering the bond market brings many positive results. First of all, the loan will be more profitable from an economic point of view. Bond loans are always cheaper than conventional loans. A significant difference lies in the timing of attracting investments. They exceed the loan period.
It is also important that the subject does not need to provide bonded 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. As a result, the subject gets the opportunity to accumulate a significant amount of investments. Bond issues not only allow the interested person to declare himself, but also:
- Contribute to the formation of a positive credit history. If the subject properly fulfills its obligations, subsequently investors will demand a minimum payment for their risks.
- Allows to reduce the cost of issuance in the presence of competition between investors for the opportunity to participate in the transaction.
- Makes it possible to distribute risks. A wide range of investors exclude dependence on any of them. This means, in turn, that there is no risk of losing control of the company.
Another benefit worth noting is the loan amount. The minimum amount of emission should be200-300 million rubles A young enterprise is hardly able to get such a loan. Loan repayment can be carried out within 3-5 years.
Currently, economists allocate corporate bonds. They are issued, respectively, by organizations, companies, and other legal entities. This tool is used for the subsequent financial support of the enterprise. Corporate bonds may be issued without collateral. This means that if there is a right to claim, there is no need to involve guarantors or collateral.
The period during which the loan is repaid can be more than a year. There are two more types of instruments under consideration. One of them is government loans. In this case, the issuer is the Russian Federation. The investor, respectively, can be legal entities or citizens. Government loans are used to solve some operational tasks, 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 address key issues at the level of a particular subject.
Loans are also classified according to the period of grant. The term of the loan will depend on various circumstances. For example, the necessary scope of legal schemes and preparatory measures matter.issuance and placement, issuance of a guarantee, etc. Medium-term bonded loan is formed for a period of 1 to 5 years. Interest on it is usually paid twice a year. To provide a loan, the interested party issues so-called coupon bonds. The period of their circulation can exceed 5 and reach 10 years. These loans are popular with mutual portfolio funds.
The current situation is caused by a long period of debt coverage. Within a specified time period, an optimal balance is achieved between short-term loans and a significant profitability of financial instruments used for a long time. Sometimes such loans are called notes. Coupon bonds are non-documentary. They are placed in releases.
Long-term bond issue
The maturity 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 life.
Government bonds are issued by the government of the country. 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, the issue was carried out not so much in financial terms, but in kind. Such a positionis explained by the fact that at that time money was considered as a relic of capitalism, and in the communist period, the government had other tasks and goals. As a result, grain, sugar and other loans were widespread in the USSR. Currently, such financial instruments are almost never used. They are especially unpopular in countries with a volatile or difficult economic situation.
The loan agreement is concluded through the purchase by the investor of issued bonds or other securities, allowing to exercise the right to receive funds from the debtor, lent to him, and the established interest.
Municipal loans can be of two types. The first is general coverage bonds. They are provided by the entire budget or part of it, as well as the issuer's own property. Such securities do not have a target investment character. 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.
At present, experts note the increased interest of subjects in this financial instrument. The second type is targeted loans, which today occupy a leading position in terms of the number of issued bonds. They are issued for the implementation of a specific investment project. The repayment of the loan is carried out from the received profit.
The most common at present aremunicipal targeted housing loans. Construction is carried out at the expense of the concentration of funds of the population through the issuance of securities. The main objectives of such an issue are:
- Search for opportunities to improve the quality of people's living conditions.
- Improvement of mechanisms for promising and reliable investment in construction.
- Improve the quality of work.
- Reducing the cost of construction and housing.
Other types of loans
Domestic loans are debt obligations in the form of bonds issued for circulation within the country. Previously, they strictly corresponded to the emission methods adopted for such types of loans in world practice. The Russian Federation began issuing domestic bonds, which were distributed among 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 Law. These government bonds are issued in documentary form. They are intended for centralized storage. The holder can receive the value of the bond and accrued interest. The total volume of the issue is $1.5 billion. The face value of the bond is $200,000. Individuals and legal entities act as potential holders. At the same time, they can be both residents and non-residents of the country. The bonds are placed under a closed subscription and can be presented for early redemption, if indicated by the global certificates that issued them.
The issue of the bond ensures the maximum satisfaction of the development plans of enterprises for various periods, opening up new opportunities to attract financial instruments on favorable terms. This is due to an increase in the recognition of the organization and, accordingly, attracting the interest of investors.
The bond issuance is subject to a special provision in the issuance agreement. There are certain requirements for debt obligations:
- The optimal loan amount should be more than 200 million rubles.
- The issuer's net assets must exceed the amount of its authorized capital.
- The enterprise must have a real project, for the implementation of which the received investments will be directed.
- Annual loan repayments must match or be less than accounting profit for the same period before deduction of mandatory payments to the budget.
Placement and Acquisition
Bonds are put into circulation on the primary market. Here is where they are implemented. If they are sold, they can be released to the secondary market. This implementation explains their key advantage - liquidity. Under current legislation, the initial placement of loans can be from 3 months. up to a year. After registration, no more than 1 year must 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. Most of them are available onMoscow Currency Exchange. Bank bonds are traded on stock exchanges. Among them can be both commercial and government agencies. For example, you can buy bonds of Sberbank. This financial organization issues debt obligations, conducts certain operations on them, ensuring an increase in the revenues 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 in order to then sell at the highest possible price. Bonds can be sold only after a certain time period, which is indicated in them. In this regard, a potential investor should be able to calculate the profitability of a loan. The issue of bonds by Sberbank is usually carried out for 1-5 years. With the right 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 backed by the government. As practice shows, capitalization indicators increase annually. In addition, the amount of capital and the value of the 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.
The cost of placing a loan is set according to two factors. She isdepends on the credit history and solvency of the issuer. The expansion of secondary markets and increased investor confidence are helping to reduce the loan price.
A positive credit history not only creates a good reputation for the issuer, but also reduces the cost of lending 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 proceeds of the bond.
Loan as a tool to raise funds
A bond loan allows the issuer to independently designate its parameters. In particular, we are talking about the volume of issue, interest rates, terms and period of circulation, and so on. The bonds contribute to the improvement of the system of mutual settlements, the development of the structure of accounts payable and receivable of the issuer. Meanwhile, despite the obvious advantages of this tool for raising funds, it should be remembered that such loans act as rather rigid debt obligations. By issuing bonds, the interested party exposes itself to certain risks. First of all, they are connected with the probable failure of this whole event. Therefore, the very fact of issuing securities does not yet guarantee their placement on the terms indicated by the issuer.
Loan as a source of financing
This role of the bond issue in developed countries is quite large. During the last 10 years of the 20th century, the issuance of such bonds accounted for more than half of private investment, and the issue of shares was within 5%. BeforeBy placing bonds, the obligations and rights of interested parties, including holders, are stipulated in sufficient detail. This need is due to the absence in the regulatory legal acts of most countries of the full list of regulations governing the procedure for their issuance and implementation. As a key limiting factor in the placement of bonds is the amount of ownership. The advantages of this instrument as a source of funding include:
- Ability to raise funds from different investors. They may include banks.
- The ability to attract small creditors. It is driven by the low cost of the bond.
- Possibility of attributing the cost of servicing loans to the cost of production. This, in turn, reduces taxable income.
- Option to extend repayment terms.
- Less cost than issuing shares.
- Low risk. It ensures the attraction of certain groups of investors.
The positive side of such placement for enterprises is the ability to calculate the optimal yield of bonds at the time of circulation. At the same time, the company can determine favorable interest rates for payments, attract significantly more investors. As a negative point, it is worth noting the possibility of incomplete placement at the primary auction. In the event of low demand, the bond's yield will rise. Positive release terms require certainactions. Negative, respectively, limit activities.
The many benefits of a bonded loan have been described above. However, with all the favorable factors, this tool also has negative features. Among them it is worth noting:
- The complexity of the emission process. To get a loan, the subject simply needs to sign an agreement with the organization that provides it. The issue of a bond involves the conclusion of agreements with the organizer of the issue, the depositary, as well as the stock exchange. In addition, it is necessary to draw up and be sure to register sufficiently voluminous documentation. For example, a prospectus consists of about 300 pages.
- Inability to plan time expenditures. The point is that the legal support of the issuance process is carried out by the organizer. The person interested in receiving funds cannot influence this process, so he only has to accept the fact that the time costs can be significant.
- Additional costs. In the case of obtaining a bank loan, the debtor pays the amount of the principal obligation and interest. In case of a bonded loan, additional costs will be added to the specified deductions, the amount of which is 2-3% of the issue size.
Nevertheless, the considered method of attracting investments remains quite popular today. With the help of this tool, many enterprises have been able to implement their projects. A bond loan in some cases is beneficial for the government of the country.It allows to ensure the replenishment of the budget deficit with the least losses. Both a citizen and a legal entity can purchase bonds. Before concluding a deal, experts recommend that novice investors study the scheme of the stock exchange.