A senior loan is collateralized by a first lien on the current and long term assets of the company. Senior financing is generally made available from banks and finance companies, although privately placed notes to institutional investors are also possible, or a public issue of bonds is on occasion the source of senior debt.
Senior financing has priority over subordinated debt financing.
A major component of senior debt is a senior term loan. This is a loan based on a certain percentage of the appraised fair market value of the land and buildings and the orderly liquidation value of the machinery and equipment. Such loans are further limited by the predictability of cash flow to service senior debt. The interest rate ranges from prime to five over prime. Another component of senior debt is almost always a revolving line of credit.