together reach the total amount it wishes to raise. A firm that seeks to borrow $50 million by issuing bonds,

might actually issue 10,000 bonds of $5,000 each. In this way, an individual investor could, in effect, loan the

firm $5,000, or any multiple of that amount. Anyone who owns a bond and receives the interest payments is

called a bondholder. If a firm issues bonds and fails to make the promised interest payments, the bondholders

can take the firm to court and require it to pay, even if the firm needs to raise the money by selling buildings or

equipment. However, there is no guarantee the firm will have sufficient assets to pay off the bonds. The

bondholders may recoup only a portion of what they loaned the firm.

Bank borrowing is more customized than issuing bonds, so it often works better for relatively small firms. The

bank can get to know the firm extremely well—often because the bank can monitor sales and expenses quite
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