Senior Secured Loan

A loan that ranks first for repayment and is backed by a claim on specific assets of the borrower.

Example

A first-charge loan secured on a warehouse and the borrower's equipment.

Important

Seniority and security improve recovery, but they do not help if the collateral is worth much less than the loan when sold.

Related terms

  • Seniority — Where a particular claim sits in the queue for payment if the borrower fails. Secured claims are paid from their collateral first, then senior unsecured claims, then subordinated ones, with shareholders last.
  • Subordination — The ranking of claims so that some lenders are repaid only after others have been paid in full.
  • Loan to value — The outstanding loan divided by the current value of the asset securing it.

Lessons that explain it

  • Appraising one loan: what backs it, how thin the cushion is, and who collects — Evaluating a loan means asking how the borrower repays, what happens if they cannot, how far collateral could fall before you lose money, and how reliable the lender or platform is at recovery. (13 min)

All 578 terms in the Investing glossary