What do you understand by the term Loan Stock?

by R. MAK. on October 30, 2009 · 0 comments

in Loans

A type of fixed income security, a loan that is made to a company is known as a loan stock. Loan stock is a stock that is granted in exchange for a loan.

loan stock

Basic kinds of loan stock

There are two basic kinds of loan stock.

  • unsecured loan stock
  • convertible loan stock

Unsecured loan stock

The first kind of loan stock is unsecured loan stock, which basically means that no collateral is being offered by the company that is receiving the loan to guarantee that the loan will be paid. Explaining this in other words, if the company defaults on the loan, the creditor has no right to the company’s property as repayment.

Convertible loan stock

The second kind of loan stock is referred to as convertible loan stock. A low, fixed interest rate is offered to a company by convertible loan stock. The creditor gets the benefits by having the ability to convert the loan stock into actual shares in the company. Specific terms and a time frame is set forth by the loan contract for conversion of the loan stock.

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