Subordinate debt

14 March 2019
What exactly is a subordinate debt. What is the purpose and whether is a revolving fund or one time loan? How the debts is assessed ?

Hitendra Jain (Expert)
14 March 2019
For any loan there is two fact first is requirement of loan and second available of fund with lender. When huge cash flow arises and the fund rest idle then to get something from it a loan is given to those business that has secured huge cash flows. The term which make it subordinate is that this loan will remain outstanding / unpaid until principle or priority loan is repaid. It can be revolving but due to biggest risk associated it is preferred to get less chances. For assessment of loan requirement four factors determined. Very first the business size. It is only give to those business that dominate with all criteria for its secured return and within assured term and for those business there is no probability of being bankrupt. Second this loan is given to the tune of that amount which can be within statutory ambit and requirement of business. Third the rate of interest can not be substantially less than other non subordinate loan and last the term within which the business can return this loan. On the viewpoint of borrower the loan considered unsecured and pari passu charge over preference and equity shareholders in case of liquidation. This loan is transacted between financial institutions, Insurance and Venture Capital segments.

Chaitnyaa c (Querist)
14 March 2019
Thnx sir for the reply.

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