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Loan Stock

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Loan stock is stock issued by a company in exchange for a loan, but carries no security or guarantee. Two types of loan stock exist: unsecured loan stock and convertible loan stock. The holder of loan stock becomes a creditor of the company, has no influence over the company's business, and is not entitled to any assets of the company in the event of failure to perform on the loan. Unsecured loan stock is similar to unsecured loans for individuals. The creditor receives no collateral to guarantee repayment of the loan. Additionally, in the event of default on the loan, the loan stock provides no rights to any of the company's property as repayment. Convertible loan stock benefits the creditor through the conversion feature, as the stock is convertible into shares of the company. An accompanying loan stock contract specifies the number of shares that the loan stock converts into, and the timing. With convertible loan stock, the company benefits from a low, fixed rate of interest. In the UK, loan stock denotes a debt security with a fixed rate of interest, may be unsecured and is repaid after a specific period of time.



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