Subordinated loan

A subordinated loan is a credit where the lender can only claim its loans last, hence the name subordinated loan.

The subordinated loan often has a higher interest rate due to the fact that this form of borrowing money entails a higher risk. This loan bears the prefix "subordinated" because the loan can only be called last in the event of bankruptcy or debt restructuring.

First, all other creditors, such as the tax authorities, banks and suppliers, will be paid and only in the last phase will the lender of the subordinated loan be paid off.

These subordinated loans are only provided to companies. The loan is provided by other business partners or stakeholders, such as a bank, holding company or investors.

Pros and cons subordinated loan

Pros
  • A subordinated loan makes investing in the company attractive.
Negatives
  • Often above-average interest due to the risk of the lender.

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