How to Raise Money Using Bonds

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Companies and government entities have the option of issuing bonds as a way of raising money. Bonds are a type of debt; the buyer of the bond essentially lends the company or government the amount of money printed on the bond in exchange for a promise that the bond issuer will pay the money back with interest. Issuing bonds is usually cheaper due to lower interest rates than borrowing from a bank and, unlike stock, does not require the issuer to give up any degree of control over the company or entity.

Issuing Bonds

Hire an investment banker who specializes in issuing bonds. QFinance, a financial resource website, strongly recommends completing a full cost analysis before going further in the process. The independent mutual fund rating company Morning Star reports that virtually all companies hire an investment banker to provide market analysis and advice before deciding to issue bonds.

Find an underwriter. Morning Star explains that companies generally do not issue bonds directly to investors but rather contract with an underwriter (usually an investment bank) to buy all of the initial bonds and then sell them off to individual investors in the marketplace. This system is efficient--the underwriter has contact with individual investors and can quickly sell bonds and transfer much of the initial risk to the underwriter.

Issue bonds and get your money. Issuing bonds is a complex financial process and companies or government entities contract with specialists to take care of the technical details. If you are working with an underwriter, you will most likely get a lump sum payment from the underwriter when you issue your first bonds.

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