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Page written by Chris Godfrey. Last reviewed on March 14, 2025. Next review due October 1, 2026.
Senior debt may be the most cost-efficient way to finance your business. Giving lenders repayment priority and providing collateral can lower the interest rate you’ll pay across a range of business loans.
Senior debt is a type of loan or financial obligation that has the highest priority in repayment if a company defaults or goes bankrupt. It is typically secured by collateral and carries lower interest rates compared to subordinated debt due to its lower risk. Senior debt holders are paid before other creditors, including subordinated debt and equity investors.
Banks, institutional lenders, and online lenders commonly provide senior debt for business financing, acquisitions, or expansion. This debt often includes covenants (rules) that require the borrower to meet certain financial conditions. While senior debt instruments provide security for lenders, they can limit a company’s financial flexibility due to strict repayment terms and collateral requirements.
When a company goes into liquidation there is a strict ranking of how creditors get repaid:
Interest rates on senior debt vary according to the type of transaction being funded and the risk profile of the borrower. However, this type of borrowing usually comes with lower interest rates than many other forms of commercial finance. Current rates for senior debt start at 8%.
Senior debt is used by businesses, financial institutions, and private equity firms to finance operations, acquisitions, or expansions while minimizing borrowing costs.
Companies favor senior debt because it provides essential funding with reduced risk for lenders, ensuring access to capital without excessive interest rates or loss of ownership.
There are different types of senior debt. In most cases, collateral is required.
Term loans are the most popular type of commercial loan. Offered by traditional banks, credit unions and online lenders, these loans are typically used for one-off investments where borrowers know exactly how much cash they need. You receive a single, lump-sum cash injection and then pay it back in regular instalments over a fixed period of up to 25 years. Borrow up to $5 million.
Also known as a revolving line of credit, this is a business loan that functions like a high-value credit card but comes with lower interest rates and fees. Borrowers can withdraw as much as they want when they want from a loan facility up to the limit of their borrowing.
Asset-based lending allows businesses to borrow against their hard assets such as plant, machinery, vehicles, real estate, materials and inventory. Once the loan is repaid, the lender’s lien is dissolved and full title to the asset reverts to you.
A bridge loan, also known as interim financing or a swing loan, is a short-term loan used to provide temporary financial assistance until a more permanent source of funding becomes available.
For borrowers, senior debt has advantages and disadvantages:
Borrowers repay senior debt via scheduled payments, which typically include both principal and interest. Repayment structures vary but often follow a fixed schedule (such as monthly or quarterly payments). Some loans, like term loans, require equal installments, while revolving credit facilities allow flexible repayments based on usage.
The interest rate, fees, and terms and conditions of senior debt can vary significantly. Shopping around before settling on a deal is essential. You can do this by approaching banks, credit unions and online lenders one by one over days, weeks, or even months – or you can contact Swoop to compare high-quality business loans from a choice of lenders. Get the funds you need at the lowest rate. Register with Swoop today.
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
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