Should My Company Consider a Debt Offering?
An overview of this restructuring or refinancing method
on July 16, 2019
Updated on August 2, 2022
To grow and to thrive, many Pennsylvania companies need access to additional capital. Whether it is to support existing operations or to expand the business, financing can help companies get into the right position to take advantage of the available opportunities. Although there are various different methods small businesses use to secure financing, they generally fit into one of the following two basic categories: debt financing and equity financing. Equity financing is a process whereby funds are raised by selling shares in the business.
In contrast, debt financing (a debt offering) is a type of loan. While taking on corporate debt can be unnerving, it may also be the most cost effective for a business to raise money. Within this article, you will find an explanation of the most important things you need to know about corporate debt offerings in Pennsylvania.
What is a Debt Offering?
A corporate debt offering involves a business raising working capital by issuing bonds or notes to investors. Essentially, the company is making a legally enforceable promise of repayment the investor (the debt buyer) at pre-arranged intervals. To compensate the investor for providing money now, the company will also offer some level of interest payment. In issuing a debt offering, a company must designate the amount of money, the interest rate, the maturity date of the debt, and the date at which interest payments will be made.
Consider the Costs and Future Projections
As explained in a story in the Harvard Business Review, issuing corporate debt can be a good thing for businesses. Indeed, there are certain circumstances in which a debt offering is the best way to raise capital. In some cases, there are even tax advantages for raising money through debt financing.
Another major benefit of issuing a debt offering instead of an equity offering is that the owners of the company do not have to give up any of their shares in the business. This is especially valuable for businesses that have the potential for strong growth in the future.
Debt Offerings Must Be Structured Properly
Corporate debt offerings are complicated. There is a wide range of rules and regulations that companies must follow when issuing debt to investors. It is important to remember that corporate debt is a type of security. If the debt offering is not properly structured, it could cause serious trouble for the business. Not only could there be a serious dispute between the company and investors, but the business could also potentially run into regulatory problems.
If your company is considering issuing a debt offering, you should consult with an experienced Pennsylvania securities and corporate finance attorney. Your attorney will help you assess all of the available options for raising capital and lines of credit, and take the appropriate steps to structure a debt offering or equity offering. For more information about this area, read our securities and corporate finance law overview.