We’ve talked about subordinated debts in the previous article, covering some of the basics and understanding the principles behind this type of debt. In this part, we are going to talk about subordinated loans and look further into the benefits and advantages this type of loan is offering to investors and borrowers.

Subordinated loan is a secondary loan issued with less importance. If a company takes out a subordinated loan while still having primary loans in their statements, then the subordinated loan will be paid after all other obligations are fulfilled in the event of a bankruptcy.

For corporations, subordinated loan is a useful financial tool to use, especially when quick financing is needed. Most of the time large corporations try their best to avoid taking out a subordinated loan. However, the company may need additional funding to expand or another loan to pay for the existing one as it matures; in any of these cases, subordinated loan is always the best source of financing to use.

From the investors’ point of view, subordinated loan is a high yield – high risk investment instrument that is always profitable to use, especially when proper calculations are done prior to investing. Keep in mind that only less than 5% of the companies that use subordinated loan goes bankrupt, which means with careful planning there are a lot of profits to be made from buying subordinated bonds.

Even the government is using subordinated loan to finance the community projects. Large infrastructure projects cost a lot, and subordinated loans with longer terms are often used to fund the project. If you are looking for a relatively safe investment opportunity with high yield, government-issued subordinated bonds are the ones you need to look into.

There are still a lot to discuss about subordinated loans, but we are going to save them for future articles.