Can Senior Debt Help Your Company’s Finances?

The economic climate has taken a hit since Covid-19, with many businesses having been forced to closed, and those who remained open, facing spiralling debts. If, like many other companies, you have struggled to keep your enterprise afloat over the last few years, senior debt could be of help. 

To find out more about it, read on. 

Firstly, what is senior debt? It is a loan that must be repaid first if a company dissolves. It is given the highest priority, as it is secured against the business or other assets, meaning it is low risk to creditors. 

One of the reasons why senior debt solutions are appealing to businesses that need a little financial boost is they come with low interest rates and agreeable repayment terms, due to their low risk. 

As Corporate Finance Institute explains: “Debtholders, typically bondholders and banks, are entitled to repayment before shareholders, should the company go through bankruptcy and liquidation.”

The creditor might impose some covenants on the borrower, such as having to maintain a certain amount of credit or particular business activities. It might also be prevented from getting involved with investments outside of its main business objectives. 

In a case where the borrower does not stick to the covenant, the lender can remove the loan or ask for the money to be repaid immediately. It could also make alternations to the product, including increasing the interest rate.  

For more information on whether senior debt development finance could be right for you, take a look here.