Subordinated Loans to Supplement the Bank
When a company is looking for more debt than the senior can lend, then subordinated debt, which is the next layer of debt financing below the senior, is an option that can be combined with the Bank to meet the total funding requirements.
Senior/Sub-debt arrangements are good for companies who would like to leverage their existing Bank or preferred banking relationship. Banks look favorably on sub-debt in general too. There are norms for establishing collateral security priority and borrower covenants between the lenders. Sub-debt often just “piggybacks” the senior loan. In some cases, no formal agreement is required between lenders at all.
Structured Business Financing works with Banks to provide creative subordinated financing solutions for small and mid-sized businesses that can fill in the gap or “top up” their existing bank facilities. Instead of replacing the senior lender, we position loans that can be subordinated to the bank’s security, or alternatively, take priority security over assets that the Bank prefers not to lend against or is not suitable for their purposes.
Common Deal Killers – Subordinated Debt
• Lack of growth history
• Weak cash flow
• Thin margins
• Customer profile and concentration
• Lack of detailed financial forecasts
• Industry risk
Subordinated financing is beneficial for SMEs that are looking to move on new opportunities and grow their business without diluting their ownership through costly and time-consuming equity issuance.
Businesses are typically able to grow their own equity at a faster rate than the cost of sub-debt.
Structured Business Financing can complement the Bank by engineering sub-debt that can be repaid at the company’s option and is fully subordinated to the Bank.
This type of financing can work for growth-oriented businesses in many industries and is an excellent fit for high-grow companies in technology and SaaS, etc.
Contact us to help you solve problems or address opportunities…
Many businesses require more capital. Beyond subordinated financing there are a range of different options that we can structure to “stretch” existing bank facilities or fill in the gap.
Contact us to start a discussion about how we can support you.