Subordinated Debt
Purpose: The lender holds a secondary lien position, subordinate to senior debt holders (aka 2nd position). This structure enables businesses to secure additional capital without disrupting existing senior debt arrangements.
Benefits:
–Second-Lien Position: Subordinated lenders hold a claim on assets that is Jr. to Sr. debt holders.
–Flexible Use of Funds: Ideal for expansion projects, acquisitions, or bridging capital gaps.
-Non-Dilutive Capital: Provides funding without requiring equity dilution.
-Shorter Terms: Repayment periods typically range up to 2 yrs, with an avg. of 12 months.
Key Features:
-Loan Amounts: $100,000 to $10 million
-Collateral: No real estate or traditional collateral required
-Eligibility: Businesses with over one year of operational history and annual revenues exceeding $1 million
Subordinated debt is particularly beneficial in scenarios where:
-Capital Gaps Exist: When there’s a shortfall between the required capital and what senior lenders are willing to provide.
-Senior Lenders Reach Limitations: If existing senior lenders are unable or unwilling to extend additional financing.
-Growth Opportunities Arise: To seize expansion opportunities without altering existing debt structures.