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Against all odds, you've made it this far and yet, you need to bring your company to the next level – to really make your dream company a reality. Your company may be a good candidate for subordinate financing from BDC.
What is subordinate financing?
The term 'subordinate financing' refers to a hybrid product that brings together some features of both debt financing and equity financing.
Subordinate financing mimics debt financing because the borrower has the obligation to repay the loan. Moreover, part of the cost is in the form of a fixed interest coupon (a deductible expense.) Subordinate financing also has characteristics similar to equity financing in that the repayment of the loan is based on cash flow, rather than depreciating company assets, and because it is subordinated to secured lenders. Subordinate financing has also been referred to as 'Subordinated debt', 'Mezzanine financing', 'Structured equity', 'Equity linked notes' and 'Quasi-equity'.
We share the risks and the rewards.
The borrower's future cash flow determines the appropriate amount of subordinate financing. However, the company's market position and management's commitment are more important than the value of guarantees.
The yield for subordinate financing is partially based on the success of your company, since the product has a provision for a stock option or royalties on sales or future cash flow. The expected yield will depend on your financial results. Our pricing structure is based on risk and benefit sharing.
How our investment is ranked and secured.
Loans are usually secured through a lien on assets, fully subordinated to senior claims of other lenders. Our main objective in securing our investments is to ensure we have priority ranking over unsecured creditors.
BDC does not offer subordinate financing to companies in financial distress. Subordinate financing is not offered to start-up companies.
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