Sunday, June 3, 2012

Getting Funds for Major Business Deals Using Senior Debt


In the world of business, credit is a very important thing to understand. Many companies access credit from banks and other financial institutions and use these funds for expansion, research and asset acquisition.  Without these credits solutions from banks, it would extremely hard for a business to grow and expand.





Understanding credit and debt is extremely important when it comes to policy making and taking crucial decision. Credit and debt are classified based on different factors. This will differ from state to state and from country to country. One kind of debt that should clearly be understood is senior debt.


Among the different debts out there, one of the ones that is becoming more and more common is senior debt. Senior debt takes the highest priority in relation to other forms of debt in terms of repayment. If you have two loans from a bank, senior debt and ordinary debt, should you be unable to make your repayments, senior debt will be paid first when your assets are liquidated followed by the other forms of debt. Banks enjoy this kind of guarantee because the chances of not getting paid are low.


There are generally two kinds of loans; high risk and low risk. Senior loan is classified as low risk. This simply means that the bank is taking a lower risk and they are guaranteed that the loan will be repaid even in extremely situations like bankruptcy or insolvency. Low risk loans attract a lower interest rate and one gets to repay them over a longer period of time. Higher risk loans on the other hand are charged more in terms of interest and the repayment period can be much shorter.


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.


Senior credit does require that security or collateral be put in place. The terms state that in case of anything, the loan will be covered by the security provided before any other form of loans is considered. In many cases, senior debt is fully covered by the collateral and the priority it is given but in some cases, the loan is covered only in part depending on the collateral.


If you do not understand how financing works, you will not be able to take full advantage and push your projects as well as your business forward. Take time and investigate different financial institutions and talk to others who have used their services in the past. Watch out for things such as customer care, how they deal with late repayment and the interest rates they charge.


Credit is there to help companies grow and expand. Senior debt comes as a great form of financing and with lower interest rates, therefore a great option in the business world.

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