Use of subordinated debt.

Position:FINANCE AND CAPITAL - Brief article

Question: My bank has requested that I subordinate a $75,000 loan that I've made to my business. Would you please explain this to me"!

Answer: Subordinated debt is a debt obligation that is subordinate (or second-in-line) to another creditor. Your bank appears to want your loan to be second to theirs; it wants the loan that it makes to your business to be paid off in full before you pay off the loan you've made to your business.

Your bank might allow your business to make some payments to you during the term of the bank loan, but it likely wants to be able to approve them and, if necessary, prohibit them such as if your business...

To continue reading