Debt types on Axial

When creating a project on Axial, by specifying the types of debt you’re interested in, you can narrow down the list of lenders who appear as Recommended Targets based on the debt that they provide.

Axial’s recommendation engine currently supports 6 debt types. If you’re unfamiliar with these, here is some basic info on each:

Senior Debt – frequently issued in the form of senior notes or referred to as senior loans, is debt that takes priority over other unsecured or otherwise more “junior” debt owed by the issuer. Senior debt has greater seniority in the issuer’s capital structure than subordinated debt, or junior debt. In the event the issuer goes bankrupt, senior debt theoretically must be repaid before other creditors receive any payment.

Junior Debt – (or subordinated debt) debt which ranks after other debts if a company falls into liquidation or bankruptcy. It ranks below: the liquidator, government tax authorities, and senior debt holders in the hierarchy of creditors. Debt instruments with the lowest seniority are known as subordinated debt instruments. Because subordinated debts are only repayable after other debts have been paid, they are more risky for the lender of the money. The debts may be secured or unsecured. Subordinated loans typically have a lower credit rating, and, therefore, a higher yield than senior debt.

Unitranche Debt – a type of debt that combines senior and subordinated debt into one debt instrument; it is usually used to facilitate a leveraged buyout. The borrower would pay one interest rate to one lender, and the rate would usually fall between the rate for senior debt and subordinated notes.

Mezzanine Debt –  is the middle layer of capital that falls between secured senior debt and equity. This type of capital is usually not secured by assets, and is lent strictly based on a company’s ability to repay the debt from free cash flow.

Factoring / Accounts Receivable Financing – a type of debtor finance in which a business sells its acounts receivable (i.e., invoices) to a third party (called a factor) at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs.

Asset-based lending (ABL) – a business loan secured by collateral (assets). The loan, or line of credit, is secured by inventory, accounts receivable, and/or other balance-sheet assets. This type of loan is often used to meet various cash flow needs of companies, for example, meeting payroll or building inventory.