Guidelines for Using Debt to your Benefit

What would the business world be like without financial institutions providing credit and other financial solutions to businesses and individuals? Many companies would find it extremely had to grow and expand their businesses and individuals would be hard pressed when it comes to buying assets and taking advantages of opportunities.




The key to making the most of credit is taking time on understand how everything works. It is also important to find out how different institutions handle credit. Every institution will have its own terms and as you travel from town to town, you will notice different rules and procedures for example on senior debt.


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 mezzanine 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.


Senior loans are extremely common in the real estate market and to companies handling huge international projects especially because this kind of loan requires less equity than other loans. This ensures that the loan accessed gives enough gearing to ensure that a company succeeds in the project being handled. Many companies turn to this kind of credit when the business situation demands address and financing options are limited.


Senior credit does require that security or collateral be put in place. The terms state that in case of anything, the loan will be covered by the security provided before any other form of loans is considered. In many cases, senior debt is fully covered by the collateral and the priority it is given but in some cases, the loan is covered only in part depending on the collateral.


If you do not understand how financing works, you will not be able to take full advantage and push your projects as well as your business forward. Take time and investigate different financial institutions and talk to others who have used their services in the past. Watch out for things such as customer care, how they deal with late repayment and the interest rates they charge.


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.