Subordinated loan: Definition and fields of application of the loan

The subordinated loan is a loan. The biggest difference to other loans is already in the name: This loan is subordinate to bankruptcies. If a creditor has claims from a subordinated loan, he must wait until other creditors are served. In this case, other outstanding debts, such as to suppliers, employees or the bank, come first. The credit risk for subordinated loans is therefore very high. That is why a subordinated loan usually has a high interest rate. In return, the borrower often only has to provide minimal collateral.


Use of subordinated loans

debt loans

In principle, subordinated loans can be used anywhere. The only thing that matters is to agree on the subordination in the contract. In this way, another existing one can be created To debit credit. Subordinated loans play a role in crowdfunding as so-called participatory loans. It is not just banks that grant the loan. Companies or private investors also invest in this way, for example in promising start-ups. The loan is usually associated with profit sharing. In other cases, the funders receive shares in the company. Subordinated loans can also be offered in real estate transactions.


Subordinated loan in home finance

In the Mortgage lending is also used. One reason is that they are possible even with little security. Those who have little capital can still build or buy property. Second, subordinated loans in real estate finance are an option because they are the stake in Increase equity. This can make it easier to obtain construction finance from a bank or savings bank. Not only when buying a property, but also with one Renovation can be used to bridge financial bottlenecks. Loans that are already running are also not necessarily an obstacle. The one in Land register as a subordinated lender gets higher To calculate interest.


Subordinated loan as seller loan

Subordinated loan as seller loan

One form of subordinated loan is the seller loan. It is to be entered in the land register as subordinate and can act as a substitute for equity. The risks are therefore lower for banks. As already mentioned, this, in turn, increases the chances of obtaining construction finance there. The banks are also in the land register with the financing amount as a creditor – but not as subordinate. This gives you a right to exploit the property, which serves as security. The seller who grants the subordinated loan is no longer the owner of the property he sells. In fact, it gives the borrower a delay in paying part of the purchase price. Of course, he bears the highest risk of loan default. This risk is particularly high because of its subordinate status. In the event of bankruptcy, the other lenders are serviced first.


Subordinated loan for investors

debt loans

So far, there has been a lot of talk about the risks associated with subordinated loans for lenders. These risks apply to investors in a company as well as to investors in mortgage lending. Finally, the loan can only be repaid if the company is successful, the property owner generates income or receives a corresponding salary. If, on the other hand, he is insolvent, the creditor who is served last is the creditor. Until then, he can expect a high return thanks to the high interest rate.


  • for investors: The high interest rates make subordinated loans particularly attractive for investors. Regardless of whether an investor is interested in crowd investment or a seller loan, the investment is straightforward.
  • For borrowers: Borrowers get a loan even if they have little collateral. You can make financing possible in the first place with subordinated loans or help to expand current loans.


  • For investors: Investors should consider that they are at a disadvantage compared to other creditors due to the order of priority in the event of insolvency (subordination agreement). If there is enough capital after an insolvency, they can only be serviced after all others. It is likely that your investment capital will then be lost.
  • For borrowers: Borrowers pay the benefits of the subordinated loan with high interest costs.