Loan and Debenture Difference

Loan and Debenture Difference

Loan and Debenture are two different type of debt financing facility available to the companies. The debenture can only be exercised by large companies having good credit rating. The difference between loan and debenture has been explained below

1.    Formal Agreement & Instrument

Loan is obtained through a formal agreement between financial institution and lender, while debenture is an instrument issued by the company to raise the finance.

2.    Determination of Interest Rate

In case of loan the rate of interest is determined by the financial institution, where in case of debenture the rate of interest is determined by the company issuing the debentures.

3.    Security

Loan can only be obtained against some security (pledge asset), where debenture may issued without any security. However, some companies also issue secured debenture (have charge on asset).

4.    Repayment of Debt

Loan is repaid in regular installment as per repayment schedule, where debenture is paid back on maturity.

5.    Trading

Debenture can be traded in debenture market; it means debenture can easily be transferred from one person to another person, where loan being specific agreement between financial institutions and company cannot be traded in the market and therefore cannot be transferred to another person.