Subordinated Debt Pros and Cons

Pros

Pros

Pros

Less costly than equity
More patient capital (no loan amortization)
Ability to retain majority control
More flexibility than senior debt
Alternative capital source with higher risk appetite
Less/no dilution vs. equity

Cons

Pros

Pros

More costly than senior debt
May create modest equity dilution through equity warrants
Borrower will need to adhere to financial covenants
Prepayment penalties may apply
Higher leverage vs equity issuance increased financial risk
Board seat may be requested