If there is a method used in many companies as a financing system, that is the issuance of debt. When a company issues debt, what it is doing is issuing financial titles for a certain price but whose acquisition it will have to reward in the future. Through this procedure, companies are able to borrow money through debt converted into financial securities.
What elements make up debt issues?
To be able to carry out financing through issued debt, it is necessary to have all the necessary elements that are part of the debt issuance process:
- Debt issuer: body that issues the debt and gets investors
- Inversor: person or body that buys the debt and offers the capital to the issuer
- Debt issued: amount of resources raised by the issuer or that needs to be obtained
- Terms: periods of time in which the issuer rewards the investor monetarily
- Interest: is the percentage of profitability that the investor receives for lending funds to the issuer when buying debt
How does debt issuance work?
But not only private companies issue debt, but the State also uses the issuance of public debt to finance itself and be able to carry out the necessary investment or pending payments. Depending on the sector, public or private, the purpose of the debt issuance may change:
- The States issue debt to be able to maintain the social welfare system, for which it will allocate the money collected with the debt issuance to Suppliers and to invest in improving public services
- Private companies use the issued debt to be able to make the most urgent payments and invest in the projects necessary to continue developing their business activities.
What types of debt can be issued?
Not all debt that is issued is the same. There are multiple factors that influence the issuance of debt and that generate different varieties of debt based on:
- the terms and terms
- emissions above, on par with or below the Nominal value, Among others.