Bonds Payable

There are different types of investments and bonds. So what are bonds payable? They are also known as long term bonds. Issued to big corporations, bonds payable indicate a responsibility to pay on the principal as well as interest on a specific date or dates. The interest payments may be made yearly, several times a year or each quarter, it depends on the specific agreement. This type of bond is normally issued in large quantities at the same time to a number of investors, who each have the right to sell the bond to another investor before it matures.

You may not be aware there are a variety of bonds payable types. The most issued are called registered bonds. A registered bond is listed under the name of an owner. Another type of bonds payable is a bearer bond. This type requires the bond holder to take the bonds to the bank to pay the principal or interest. Secured bonds, as the name suggests, require collateral from the borrower. Bonds that are given out in groups and have different maturity dates are serial bonds. Finally there are debenture bonds which are issued without collateral.

The cost of bonds payable depends on the risk involved. The more risk there is, the higher the interest rate will be. If you are still confused about what are bonds payable, let’s look at a basic scenario. Let’s say your company has a need for funds. You could, through your company, issue $100,000 worth of bonds with 10 year terms at an interest rate of 5 percent and payments scheduled throughout the year. Those purchasing you bonds will pay you $100,000, and in 10 years you are to pay them this amount back plus pay the interest on the semi-annual dates specified.

One of the top advantages of bonds payable for a company is to access fast cash that they can acquire nowhere else. The buyers of the bonds benefit from the interest paid to them, which can add up to a substantial amount. If you are thinking of buying a bond of this type, do some homework on the company to deduce how financially stable they are. The interest can be much higher with bonds payable than with other investments, so if the company is one you trust to pay you as specified this can be a good investment to make.

Because bonds payable do deal with large sums of money, and because they can carry some amount of risk, you may want to consult with a financial professional who has expertise in this area before buying one of these bonds. If you are a company owner considering issuing one of these bonds, you should also think carefully before doing so and weigh the advantages and disadvantages with a financial advisor.

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