Credit enhancement

Credit enhancement is any action taken to improve one’s creditworthiness. For example, an issuer of bonds can obtain insurance or a surety bond from a third party that guarantees payment of the bonds. Other options are for the borrower to provide additional collateral to the lender, or to set aside cash in a sinking fund that is reserved for the eventual retirement of any bonds issued. Yet another possibility is to adopt a more conservative financial structure by keeping more cash on hand, thereby improving the liquidity ratios being examined by lenders. By taking these steps, an organization may be able to increase the amount it can borrow, as well as reduce the interest rate it is charged.

Related Courses

Corporate Finance 
Credit and Collection Guidebook 
Treasurer's Guidebook