What is a Secured Bond?
A bond is issued by a business if it wants to obtain funding from long term investors by way of loans. The bonds will stipulate the interest rate and the term to be used, known as the maturity date. At the maturity date the investor will receive repayment of the principal amount invested and interest.
A secured bond is a type of bond payable secured on specific assets. The asset can be property, equipment or even future revenue of the business. In the event of default, the lender can seek recovery of the amounts owed by the business using the secured assets.
As a secured bond is normally seen as less risky than an unsecured bond, a business looking for finance will offer a lower interest rate on the bond thereby reducing its total interest payments. As the interest rate is lower, the yield to an investor will be lower on a secured bond than on an unsecured bond.
For further information on secured bonds see our bonds payable tutorial.
Additional information on bond finance and secured bonds can also be found at Wikipedia Bond Finance.
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