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Santa Ana, CA 92701


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'.

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. Subordinate financing lenders may expect a yield of 18 to 22% but it can vary depending on your financial results. The pricing structure is based on risk and benefit sharing.


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