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The interest may be paid monthly, quarterly, or annually. The company issues them for raising funds for their business. This rate can be either fixed or floating and depends on the company’s credit rating or the bond’s credit rating. Debentures are often used to finance expansion or other major projects. Once this is in place, the investor will lend the funds to the borrower. If the company does not pay loan interest and the principal security falls short, lending institutions can exercise their right as debenture holders. In particular, it is an unsecured or non-collateralized debt issued by a firm or other entity and usually refers to such bonds with longer maturities. Secured bonds are backed by some sort of collateral in the form of property, securities, or other assets that can be seized to repay creditors in the event of a default. Unsecured debentures have no such collateralization, making them relatively riskier. Further, debentures may carry credit risk and default risk. As stated earlier, debentures are only as secure as the underlying issuer’s financial strength. Business Studies Class 12 MCQs. In exchange for the money, the company agrees to pay interest on debentures over a fixed period of time. Once the debenture matures, the company has to pay back the face value in exchange for the right to redeem it.