Why senior debt matters to a first-time founder
Priority affects lender risk, pricing and what remains for other creditors and shareholders if a company fails. Senior lenders may demand covenants, security and control over additional borrowing. Founders need to understand those restrictions before accepting cheaper capital, because breaching them can accelerate repayment or block later financing.
Examples of senior debt
A company has ₹200 million of senior debt and ₹100 million of junior debt. After insolvency costs, only ₹240 million is available for those lenders. Subject to security and local law, the senior debt is paid first, leaving ₹40 million for the junior lender and nothing for shareholders from that pool.
Common misunderstanding
Senior does not necessarily mean secured, guaranteed or certain to be repaid in full. Ranking may arise from security, contract, structural position or insolvency law, and employee or tax claims may receive special treatment. The actual documents and jurisdiction determine priority, not the label alone.
When to use it
Use the term when comparing loan offers, building a capital structure or reviewing an investment waterfall. Map each creditor’s security, guarantees, ranking and intercreditor terms under realistic downside values. Obtain legal advice before adding junior debt or granting new security, because existing agreements may prohibit it.