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By: eugene tucker

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Wednesday, 30-May-2012 19:16 Email | Share | | Bookmark
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In the world of business, credit is a very important thing to understand. Many companies access credit from banks and other financial institutions and use these funds for expansion, research and asset acquisition. Without these credits solutions from banks, it would extremely hard for a business to grow and expand.

Understanding credit and debt is extremely important when it comes to policy making and taking crucial decision. Credit and debt are classified based on different factors. This will differ from state to state and from country to country. One kind of debt that should clearly be understood is senior debt.

Senior debt definition is a special category of debt that received higher priority than other subordinate debts in terms of principal and interest even when the funds are issued by the same institution. When it comes to repayment, the debt gets first priority. This means that when a company goes under or one files for bankruptcy, senior debt will get priority over other forms of debt and therefore it is first in the repayment schedule. The rule is secured loans are always paid first before unsecured loans.

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.

Every business man and company needs to have a good relationship with a couple of lending institutions. Your choice will depend on what you are looking for. Take time and do a thorough research and ensure that you work with the right financial partner to avoid disappointment and making losses. If others are happy with their services, then that is a good choice for you to consider.

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.


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