Business Consulting


Bond Funding

What is bond funding?

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security under which the issuer owes the holders a debt and depending on the terms of the bond is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity. Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Very often the bond is negotiable, i.e. the ownership of the instrument can be transferred in the secondary market.

Thus, a bond is a form of loan or IOU: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments or in the case of government bonds to finance current expenditure. Short term commercial paper is considered to be a money market instrument and not a bond; the main difference is in the length of the term of the instrument.

Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e. they are owners), whereas bondholders have a creditor stake in the company (i.e. they are lenders). Another difference is that bonds usually have a defined term or maturity after which the bond is redeemed, whereas stocks may be outstanding indefinitely. An exception is an irredeemable bond, such as Consols, which is perpetuity, i.e. a bond with no maturity.

Bonds are utilized by schools or other educational institutions to fund energy improvement projects, such as a solar PV system investments.

Contact EnFin to explore the potential for your organization qualifying for a bond to fund your energy improvement project.