The best way to Choose the Correct type of Credit

Many people do not take the time to research more on the topic of credit given that it is a major part of business. Being able to access credit has allowed many companies to grow and expand their businesses. Many people turn to banks and other financial institutions to help them grow their net worth, get into business and also buy assets that they need.




Senior debt is a common form of credit and each financial institution will treat this as well as other debts. Different things are taken into consideration when it comes to debt classification. The terms of payment will also differ. Take time and find out what is required in different organizations.


The one big factor about senior debt is the fact that it is given higher priority that other forms of loans. This therefore means that senior debt will get paid first before other debts are paid in case you face financial difficulty. Many companies do face financial challenges and cases of bankruptcy are very common. When this happens, you assets are sold to pay off your debts and if you have senior debt, it will be paid first before the other debts that you have, giving the lending company more guarantee.

When the guarantee of a loan getting paid is higher, the loan then carries a lower risk than a loan whose payment guarantee is lower. Loans that carry a lower risk therefore attract lower interests than loans that carry a higher risk. Lending institutions of course want to protect their own interests and be assured that their money will be repaid regardless of what happens. If this guarantee is low, the will protect themselves by charging more in terms of the interest rates and make the repayment period 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.


In order to access senior debt, you must provide collateral on which first lien is placed. In the event that you are unable to pay the loan, the collateral is liquidated to cover the loan. As stated, senior debt received first priority of repayment but in some cases, fully repayment is not possible. This is especially so if the collateral is not sufficient to cover the loan and the accrued interest.


Like with any other form of credit, it is important for one to understand debt finance before borrowing. It is also important to select the right financial institution to work with. Each will package the offer differently and place different kinds of requirements. It is important to seek the guidance of a   financial expert to give you a debt overview before making the final decision.


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.