Companies require funding at regular intervals to manage different business obligations. Sometimes, traditional banks might not provide loans to companies, leaving them helpless. Luckily, they can turn to DCM (Debt Capital Markets) to obtain funds for business operations. Investment banks play a significant role in helping companies sell debt securities and secure funds. They regularly monitor debt capital markets and identify the best opportunities for clients to secure funding. Companies can use the funds secured from debt capital markets for growth purposes.
Read on to understand how DCM investment banking supports the growth of companies.
Understanding DCM and the Role of Investment Banks
A debt capital market offers a platform where companies can sell debt securities and secure funds from investors. Collateralised bonds and convertible bonds are other debt securities traded in DCM. Compared to loans from banks, companies can secure more funds via DCM. The interest rate on debt securities is also lower for enterprises. A debt capital market can be global, with funds coming from investors worldwide. Gaining access to capital markets might be a hassle for a company. It is where investment banks come into the picture for DCM support.
Investment banks offer companies access to debt capital markets. They help their clients issue debt securities and finalise the sale with reputed investors. An investment bank plays a significant role in linking companies and possible investors. Clients of an investment bank offering DCM support do not have to worry about a thing. From deal origination to execution, everything is managed by the DCM department of the investment bank. The company only need to focus on using the funds accordingly and spurring growth.
How Does DCM Support from Investment Banks Spur Growth for Companies?
Investment banks open gates to capital markets, where investors and companies meet. Without DCM support, a company might not choose suitable debt securities to trade. Investment banks also offer advisory support to clients for raising funding via debt securities.
Here’s how DCM investment banking supports the growth of companies:
Access to More Funds
Traditional business loans might not be sufficient to spur growth within a company. Business loans are perfect for small or urgent expenses like payroll, machinery, and software purchases. To spur growth within a company in the long run, you need access to a large pool of capital. More funds can only be secured by selling securities in debt capital markets.
Often, multiple investors offer funding within a single debt capital market. Investment banks will provide clients with large funding options. Such large funding can be used appropriately to spur growth. A software company can establish a research centre for innovation in the long run. The company cannot establish a research centre with a small business
loan. An investment bank will help the company secure large funding from a debt capital market and establish the research centre over time.
When companies secure business loans, they pay heavy interest charges. Since they pay interest charges, they cannot allocate funds for growth and innovation. On the other hand, debt securities come with low interest and lengthier repayment terms. A company will have ample time to repay the debt secured via DCM. It will pay less interest over time for debt securities. When companies don’t have to repay quickly, they can invest the money for spurring growth.
Investors in some capital markets might ask for equity/ownership from companies. A company might not be ready to sell equity to private investors. With DCM investment banking, companies do not have to sell equity to secure funds. Investors are also aware of the repayment concerns. Investors don’t want to fund a company that might not return their money. For the same rationale, investors have started trading flexible debt securities. They might buy convertible bonds from debt capital markets. If the company fails to repay the debt, convertible bonds will change to equity, and investors will get ownership of the company. Companies trading debt securities must not forget to repay timely to avoid hassles.
No Restriction on Fund Usage
Investors will not direct a company on how to use the funds secured via a debt capital market. A company can open a research centre or establish offices in new jurisdictions. It is entirely up to the company how it uses the funds secured via a debt capital market. A company can also seek financial support from a third party to use funds appropriately.
In a Nutshell
DCM investment banking can help companies secure funds at low interest. Companies will have more time to repay the debt secured via DCM. Investment banks can also seek support from a third-party research firm for enhanced DCM processes. They can help their clients secure better deals in debt capital markets. Seek DCM support now for improved productivity!
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