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Small Business Investing

Investing in a Small Business

What is an investment in a private company’s debt?

When an investor invests in a private company’s debt, the investor is making a loan to the entity in exchange for some form of interest plus the initial principal of the obligation. The investor is the financier, or bank, to the company. Typically, debt obligations are made as direct loans to the entity, with a regular amortization schedule based upon a mutually agreed-upon interest rate. Collateral may be used to secure the loan. Or the business entity may issue a corporate bond, wherein interest is paid semi-annually and all principal is paid when the bond comes due.



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