Financial Management: Core Concepts, Third Edition

15.4 Borrowing for a Stable and Mature Business: Selling Bonds

Once a business grows to a certain size and has established itself in an industry, the capital markets become an available financing source. The two main ways to raise funds in the capital markets are through bond sales and through equity sales. We have already looked at the pricing of bonds and stocks in Chapters 6 and 7. Here we will examine the issuing process for these two kinds of securities. Let’s start with bonds. In contrast to the loans that you studied in the previous section, which were mostly for the short term, bonds generally have maturities of twenty or thirty years; we view them as long-term financing.

A financial institution may issue bonds either in a public auction ...