Debt Campaigns


#1

What is an investor buying? - The investor is loaning funds to a business by purchasing a promissory note.

How does an investor make money? - The company makes payments based on a predetermined frequency (for example, semi-annually) for a specified amount of time and at a specified interest rate.

What are the risks? - Since with debt an investor receives interest payments instead of ownership in the company, the risk to the investor is that the company will be unable to make interest payments and potentially default. A company needs enough cash to comfortably make interest payments without the payments impairing its operations. An investor should think before investing whether the financial statements of the company and revenue projections are realistic enough to give the investor confidence these revenues will be enough to support the interest payments on the debt. In the event the company liquidates, debt holders will typically be paid before equity holders, however this does not mean investors are protected against loss. In some cases when investors lend money to a company, the debt may be collateralized with assets that can be sold for partial or full repayment if necessary.

Why issue this? - Companies typically issue debt after they have been in existence long enough to be generating revenue from their operations. Companies also do not need to give up a percentage of ownership by issuing debt instead of equity to investors.