A type of loan which is usually secured, and which has a fixed or floating charge attached to it. A debenture with a fixed charge has a fixed rate of interest attached to it, whilst a debenture with a floating charge has no fixed rate of interest A secured debenture is one that is specifically tied to the financing of a particular asset. The debenture holder has a legal interest in that asset and the company cannot dispose of it unless the debenture holder agrees. Debenture holders have the right to receive their interest payments before any dividend is payable to shareholders and if the business fails, the debenture holders will be preferential creditors and will be entitled to the repayment of some or all of their money before the shareholders receive anything.
The most common form of long-term loan taken by a company. It is usually a loan repayable at a fixed date, although some debentures are irredeemable securities; these are sometimes called perpetual debentures. Most debentures also pay a fixed rate of interest, and this interest must be paid before a dividend is paid to shareholders.