We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is a Senior Bank Loan?

Jim B.
By
Updated: May 17, 2024
Views: 4,959
Share

A senior bank loan is a loan issued by a bank to an individual or, more often, a business in return for interest payments and eventual repayment of the loans. What distinguishes this loan is that the bank that lends the money is entitled to payback before all other lenders involved with the borrower. This characteristic is important should the borrower default on payback obligations and, due to financial calamity, file for bankruptcy. An individual can buy a senior bank loan on the secondary market, thereby taking over the rights that accompany the senior debt.

Many businesses use loans for various initiatives. Some young businesses use loans for start-up costs like finding office space or funding marketing efforts. Other businesses that are a bit more established might use the loans for a business initiative like expansion to a new market or development of a new product line. Whatever the case, banks are often the source for these loans since they have access to significant capital. As recompense for the risk of giving the loan, banks often demand some sort of security from the borrower, and one way this is accomplished is through a senior bank loan.

The basic components of a senior bank loan are similar to other loans. A bank will lend the money to the borrowing company, which then promises to make regularly scheduled interest payments at a predetermined rate and to pay back the principal at the end of the loan's term. With a senior loan, however, the lending bank gets precedence should the business lose its ability to repay.

Often, a company that can't pay back a senior bank loan is in financial trouble. If that company files for bankruptcy, the bank that made the senior loan gets first claim on any assets that the company liquidates. Any other lenders that were involved with the company must wait for the senior loan to be repaid before they can make any claims on remaining assets.

Individual investors may become involved with a senior bank loan through the secondary market. Banks resell these loans to investors, often in packages. When this occurs, all rights that belonged to the bank as the senior lender are transferred to the investor that buys the debt. This makes the debt a relatively safe investment. Those investors that have purchased the loan will be first in line if the borrower falls into bankruptcy, thus allowing them a measure of protection from unexpected defaults.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Jim B.
By Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own successful blog. His passion led to a popular book series, which has gained the attention of fans worldwide. With a background in journalism, Beviglia brings his love for storytelling to his writing career where he engages readers with his unique insights.

Editors' Picks

Discussion Comments
Jim B.
Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own...
Learn more
Share
https://www.wisegeek.net/what-is-a-senior-bank-loan.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.