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Guilherme Mazui

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What is the Difference Between Debenture and Loan?

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The main difference between a debenture and a loan lies in the way they are issued and the collateral backing them. Here are the key differences between the two:

  1. Issuance: A debenture is issued by the business receiving the loan as a promise to repay a borrowed sum, while a traditional loan is issued by the lender.
  2. Collateral: Debentures are unsecured loans, meaning they are not backed by any collateral, whereas loans can be secured (backed by collateral) or unsecured.
  3. Debenture vs. Loan: All debentures are loans, but not all loans are debentures.
  4. Transferability: Debentures are transferable, meaning they can be sold or traded, while loans are not.
  5. Creditworthiness: Debentures rely on the creditworthiness and reputation of the issuer for support, as they are not backed by any collateral.

In summary, a debenture is a type of unsecured loan issued by a company as a promise to repay a borrowed sum, while a traditional loan can be secured or unsecured and is issued by a lender. Debentures are transferable and rely on the creditworthiness of the issuer, whereas loans are not transferable and can be backed by collateral.

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  • What is the Difference Between Debenture and Loan?
  • Comparative Table: Debenture vs Loan

    • Comparative Table: Debenture vs Loan

    Here is a table comparing the differences between debentures and loans:

    Feature Debentures Loans
    Definition A debenture is a type of unsecured bond or debt instrument issued by a company to raise capital. A loan is a sum of money borrowed from a lender, usually with an agreed-upon interest rate and repayment terms.
    Lending Partner Debentures are issued to the general public, allowing companies to raise money from outside sources. Loans are typically provided by banks and other financial institutions.
    Collateral Debentures do not require any collateral from the company. Loans usually require collateral or a physical asset from the borrower.
    Interest Rate Debentures may have fixed or floating interest rates. Loans can have fixed or variable interest rates, depending on the agreement between the borrower and the lender.
    Transferability Debentures can be transferred between parties. Loans are generally non-transferable.

    In summary, debentures are a type of unsecured debt instrument issued by companies to raise capital, while loans are sums of money borrowed from lenders with agreed-upon repayment terms. Debentures do not require collateral and can be transferred between parties, whereas loans usually require collateral and are non-transferable.

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    Guilherme Mazui

    Guilherme Mazui is graduated in journalism from the Federal University of Minas Gerais (UFMG) and a master's degree in Communication from the University of São Paulo (USP). In addition, he has experience in advertising writing and has worked as a content editor in several companies.