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Many people do not take the time to research more on the topic of credit given that it is a major part of business. Being able to access credit has allowed many companies to grow and expand their businesses. Many people turn to banks and other financial institutions to help them grow their net worth, get into business and also buy assets that they need.

Senior debt is a common form of credit and each financial institution will treat this as well as other debts. Different things are taken into consideration when it comes to debt classification. The terms of payment will also differ. Take time and find out what is required in different organizations.

Senior debt definition is a special category of debt that received higher priority than other subordinate debts in terms of principal and interest even when the funds are issued by the same institution. When it comes to repayment, the debt gets first priority. This means that when a company goes under or one files for bankruptcy, senior debt will get priority over other forms of debt and therefore it is first in the repayment schedule. The rule is secured loans are always paid first before unsecured loans.

Senior debt finance is considered low risk by the lender simply because of the priority it is given. It has what is called a secure claim and should the worst happen, the loan in given top priority in terms of repayment. There is a direct relationship between security and interest rates charges. When security is high, less interest rates are charges and this is the case with senior debt. Unsecured loans on the other hand attract much higher interest so as to cover for the risk that the lending institution is taking.

Big corporations are taking advantage of senior loans especially when it comes to ventures that are capital intensive such as real estate and manufacturing. These ventures are usually extremely profitable but they take time to turn around. You can easily be able to access a senior loan even when your equity is low and they give you enough time to work on the project and make it a success. These loans come in handy to provide you with the financial muscle needed.

The terms of senior debt as always will differ from bank to bank but in all cases, it is required that a collateral be put in place to cover the debt in case of any eventualities. The collateral can cover the debt in full or in part depending on the terms. It is good to note that the loan will be covered only to the extent of the collateral provided and not more. Full repayment therefore hinges on this.

Like with any other form of credit, it is important for one to understand debt finance before borrowing. It is also important to select the right financial institution to work with. Each will package the offer differently and place different kinds of requirements. It is important to seek the guidance of a financial expert to give you a debt overview before making the final decision.

Many people fear credit but when wisely used, credit is a great way to expand your business and personal interest. You get money to use which you can repay slowly as your projects become profitable.


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