Subordinate Financing


DEFINITION of 'Subordinate Financing'

Debt financing that is ranked behind that held by secured lenders in terms of the order in which the debt is repaid. "Subordinate" financing implies that the debt ranks behind the first secured lender, and means that the secured lenders will be paid back before subordinate debt holders.

BREAKING DOWN 'Subordinate Financing'

The lender's risk in subordinate financing is higher than that of senior lenders because the claim on assets is lower. As a result, subordinate financing can be made up of a mix of debt and equity financing. This allows the lender involved to look for an equity component, such as warrants or options, to provide additional yield and compensate for the higher risk.

  1. Junior Mortgage

    A mortgage that is subordinate to a first or prior (senior) mortgage. ...
  2. Bridge Loan

    A short-term loan that is used until a person or company secures ...
  3. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) ...
  4. Kicker

    1. A right, exercisable warrant, or other feature that is added ...
  5. Second Lien Debt

    Debts that are subordinate to the rights of other, more senior ...
  6. Maturity

    The period of time for which a financial instrument remains outstanding. ...
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