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Word Count: 492
Debentures Mortgages and Long-Term Loans As we saw from the explanation of long-term liabilities they are liabilities that the firm has which are due in over a year There are various possibilities for this- Debentures Mortgages Long-term loans Debentures A debenture is a form of borrowing by a firm It may issue debentures of a fixed value - say 1000 or 5000 - at a certain rate of interest These debentures may be bought by individuals or by financial institutions The debentures will have a fixed time period after which they will be paid back This may be 5 or 10 years or in some cases even longer In some cases they carry perks with them Much of the new number 1 court at Wimbledon was funded by issuing debentures in return for which people get preferential deals on tickets They are often attractive because they tend to be a secure investment and because the interest will have to be paid whatever the level of profit This makes them less risky than ordinary shares For the firm they can be a good way of raising money because they are predictable It can plan ahead the cash requirement for paying the interest and knows exactly when they will have to be redeemed Mortgages A mortgage is also a form of long-term loan However it will usually tend to be on property or some other fixed asset It will be what is known as a secured loan This means that the loan is secured to the asset it was borrowed for If the money was borrowed for example to finance the purchase of a plot of land and the firm fails to make the required loan payments then the lender can start legal proceedings to repossess the asset This means that they will then own it and can sell it to get their money back Any surplus would of course be returned to the firm The rate
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