Subordinated Debt
Subordinated debt is financing that ranks below senior debt in repayment priority, often used for acquisitions, growth, or balance-sheet restructuring where senior lenders will not extend more credit. It typically carries higher rates to compensate for greater risk. ASBCLF connects applicants with lenders offering subordinated and mezzanine financing.
What Is Subordinated Debt?
Subordinated debt (also called junior or mezzanine debt) is repaid only after senior lenders in the event of default or liquidation. Because it carries more risk, it costs more than senior debt and may include equity-like features such as warrants. It bridges the gap between senior debt and equity, providing growth capital without immediate ownership dilution.
How It Works
- Submit an application through ASBCLF with details about your business, capital structure, and use of funds.
- ASBCLF matches your application with lenders offering subordinated and mezzanine financing.
- The lender reviews your cash flow, existing senior debt, and growth plan.
- If approved, you receive capital structured as junior debt, repaid over a multi-year term.
Typical Use Cases
- Acquisitions and buyouts
- Funding expansion
- Recapitalization
- Refinancing existing obligations
- Bridging to an equity raise
Eligibility Considerations
- Established, predictable cash flow
- Existing senior debt capacity
- Clear use of proceeds
- Experienced management team
- Defined repayment or exit plan
Eligibility varies by lender and program. ASBCLF submits your application to its lender network; individual lenders set their own criteria and make their own decisions.
Documents You May Need
- Business financial statements
- Financial projections
- Capitalization table
- Senior debt agreements
- Business plan and use of funds
Repayment Structure
Subordinated debt is repaid on a fixed schedule over a multi-year term, often with a balloon payment at maturity. Some structures allow payment-in-kind (PIK) interest, which accrues rather than paying cash. Terms and covenants vary significantly by lender and deal.
How It Compares
Subordinated debt fills the gap between senior debt and equity. See how it compares to related financing.
Frequently Asked Questions
What is subordinated debt?▾
Subordinated debt is financing that ranks below senior debt in repayment priority. In default or liquidation, senior lenders are paid first. Because it carries more risk, subordinated debt typically costs more than senior debt.
Why does subordinated debt cost more than senior debt?▾
Because it is repaid only after senior lenders, subordinated debt carries greater risk of loss. Lenders price that risk with higher interest rates and sometimes equity-like features such as warrants.
What is mezzanine financing?▾
Mezzanine financing is a form of subordinated debt that blends debt and equity features, often including warrants or conversion rights. It provides growth capital with less immediate dilution than issuing equity.
When should a business consider subordinated debt?▾
It suits established businesses with stable cash flow that need capital for acquisitions, expansion, or restructuring beyond what senior lenders will provide, and that want to avoid immediate equity dilution.
Ready to explore subordinated debt?
Submit a single application and ASBCLF will match you with lenders suited to your business.
Apply for Business FinancingPage last reviewed: 2026-09-26.