Any thing which you owe is debit, mostly it refers to the assets which you are owed by you, but it may also cover the moral obligations and other activities which dont involve money at all. Debt also means to have a future purchasing power at present before a summation has been earned.Debt also play an important role in Corporate finance Strategy of Companies.
When a creditor agree to lend some Money to the debtor than debt is created. It is usually expected with a repayment just as a interest charged by the creditor to debtor.
Types of Debt:-
- Secured and Unsecured
- Private and public debt
- Syndicated and bilateral debt
- Other types of debt which don’t exhibit above characteristics
Debt obligations are considered secured when creditors have recourse to the assets of the company on a proprietary basis while Unsecured debt consist of financial obligations where the creditors still have not recourse to assets of the borrowers to satisfy the claims.
Private debts are the bank-loan form of obligations. It also means a public debt which covers all financial instruments that can be easily purchased and sold on a public exchange. They are very liquid in nature.
The simplest form of debt is the loan. It contains a fixed session of time in which the principal sum of the lender is to be repaid. Sometimes the Principal sum paid to the debtor is less the principal sum to be paid back. It means there is an interest on the principal sum which has to be paid by the debtor.
A syndicate loan is paid to the companies who want to borrow millions of dollars
In this type of loan more than one bank agrees to pay the loan.
A bond is the debt security which can be issued by the companies or by the government itself. A bond has a interest rate which is paid on the Principal amount at the end of every year. A bond may have a life of few years and or it may end up forever. It means that generations can enjoy the benefits if the company sustained.
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