A debt obligation that is backed by only by the creditworthiness of the issuer (borrower). It is a type of long-term business debt not secured by any collateral. Debentures are issued and documented by means of an agreement known as an indenture. These debt instruments are a form of debt capital.

Financing through debentures allows a company to borrow without having to issue shares and dilute their equity. Debentures can also be instrumental for companies that don’t want to tie up assets (as collateral) or which (e.g., fast growing companies) lack collateral for an ordinary loan.

A debenture also denotes a legal certificate that sets out how much money an investor put forth (principal), the interest rate to be paid and the payment table. Investors are paid back their principal when the debenture matures. The borrowing business typically only pays the interest (a percentage of the principal or face value of the certificate, or the borrowed amount) during time to maturity and then repays the full principal when the certificate matures.

A debenture is a type of unsecured long-term business loan, and hence, issuers need to be creditworthy and have a history of positive cash flow. Debentures take many forms including convertible debentures, non-convertible debentures, bearer and registered debentures, etc. (see: types of debentures).

Unlike a typical loan, a debenture is negotiable- i.e., a debenture holder (the lender) can sell the debenture to another party. In this sense, it is a type of marketable security.)

An unsecured debt is an example of debenture.