The majority of people would not be able to afford expensive things such as a home, education or a car without taking a loan. Just like people, businesses also need to borrow money that will help them grow and succeed. They use that money on many things like to grow, move into the new market, or to found some operations.
Usually these things cost a lot of money and unfortunately, banks cannot provide such amount of money for a single business. At that point, businesses turn to their last option and that is to issue bonds. Bonds are nothing more than a loan if you want to know how the bond process is working then continue reading this article.
There are two sides of signing a bond contract. There is the side that is buying a bond and the side that issues it. First, we will explain the side that buys the bond. Buying a bond means that you will be lending money to the business that issues it. That business will in return sign a contract in which they promise to pay interest payment to you. We cannot give you information such as how often or how much will you get paid because it will only depend on the terms of the actual bond.
A different name for the interest rate you can find in some places is Coupon. Usually, the interest rate will be higher if the bonds are long terms. These payments are in most cases doled semi-annually, but sometimes they can be sent out even monthly. The original amount of the loan will be repaid when the bond matures. Now for the other side of the bond contract the issuer. In this case, you are the one in need of the money so you will be the one that is paying the interest rate semi-annually or monthly depending on the contract.
There are, of course, many different types of bonds such as Government bonds, Municipal bonds, Corporate bonds and more. Government bonds are known to be the safest investment especially the bond from the United States. These bonds can mature in different lengths, there are some that can mature in less than a year and there are some that take more than 10 years to mature and they are called treasury bonds. Usually, you with this bond you don’t have to pay income taxes. You can also learn more by reading this informative piece titled: “What Does It Mean to Be Bonded”