Creditor

Someone who has lent money and is owed repayment, ranked ahead of equity holders if the borrower runs into trouble.

Example

A bondholder is a creditor of the government or company that issued the bond.

Important

Being a creditor caps your upside at the interest rate you were promised, in exchange for being repaid before shareholders see anything.

Related terms

• Debt — Money lent that must be repaid with interest, regardless of how the borrower's business or asset performs.
• Equity — Ownership in a company or asset - a claim on whatever is left after debts, and on any growth in value.

Lessons that explain it

• A bond is a loan with a contract: what you are owed, and by whom — Four facts define a bond - issuer, par, coupon, maturity - and all four are contractual. You are a creditor, ranking ahead of every shareholder. (10 min)
• A deposit is a loan you made to a bank — Money in a savings account is not money you are holding. It is a debt the bank owes you, and what makes it safe is a government guarantee with a limit - not a property of money itself. (9 min)
• A secret number, and one line in a shared record — What you own is not a coin and not a claim on anybody. It is the ability to authorise a change to one entry on a ledger - and who holds that ability is the whole of the risk. (10 min)
• Selling early means accepting a discount; a wind-down usually means preferences take what is left — A secondary sale can return cash before a company exits, typically below the latest valuation. When a company winds down, creditors and preferences are paid first, and common holders commonly receive nothing. (11 min)
• A convertible note is a loan that usually becomes shares, at the better of two prices — A convertible note is debt that converts into equity at a future round, typically at the lower of a discounted price or a capped price, with interest added to the amount converting. (12 min)
• Every instrument answers one question differently: what happens if it goes badly — Warrants give the right to buy shares at a set price. Venture debt is a loan that ranks ahead of equity and often comes with warrants. In a poor outcome, the order of claims decides who recovers anything. (11 min)

All 578 terms in the Investing glossary