A corporate prefers issuing bonds instead of taking bank

Solution

• Lower Borrowing Costs: For large, reputable corporations, issuing bonds directly to investors in the capital markets often results in a lower interest rate (coupon rate) compared to the interest rates charged by banks, which include bank overheads and profit margins. • Market Access: Bonds allow a company to tap into a wide pool of institutional and retail investors, providing a more efficient way to raise large amounts of capital. • Reduced Restrictions: Bonds often come with fewer restrictive financial covenants (e.g., limitations on borrowing or dividend payments) than bank loans, providing management with greater operating freedom. • Tax Efficiency: Interest payments on bonds are generally tax-deductible, reducing the overall cost of capital.