Junior Capital Loans provide flexible, subordinated financing that works in tandem with Asset-Based Lending (ABL) to help businesses access additional capital beyond their senior borrowing base. As a complement to ABL, junior capital fills the gap between secured debt and equity, enabling companies to fund acquisitions, recapitalize, or invest in long-term growth without sacrificing ownership.
What is a Junior Capital Loan?
Junior Capital Loans, also known as mezzanine or subordinated debt, sit below senior credit facilities in the capital stack. These loans are typically unsecured or second-lien, offering borrowers supplemental capital that doesn’t compete with their existing ABL. At Great Elm Commercial Finance, Junior Capital is often structured alongside an ABL solution—helping businesses unlock capital they need for strategic initiatives while preserving equity and senior lender relationships.
Pairing Junior Capital with ABL enables greater total funding—unlocking working and growth capital without equity dilution.
What types of assets qualify as collateral?
Accounts Receivable
Inventory
Machinery
Equipment
Commercial Real Estate
Debtor In Possession
When is a Junior Capital Loan the Right Fit?
If your borrowing base under an existing ABL facility is fully utilized, Junior Capital can provide incremental capital without requiring additional collateral—unlocking new liquidity beyond your ABL cap.
Whether you’re acquiring another company, entering a new market, or investing in long-term initiatives, Junior Capital Loans supply the capital to grow without diluting equity or disrupting senior financing.
Junior Capital can help fund shareholder buyouts or recapitalizations when other sources are unavailable. The subordinated structure ensures alignment with ABL lenders and preserves long-term ownership control.
Junior Capital offers funding without tying up additional assets. It's ideal for companies with strong growth prospects that need supplemental financing alongside ABL, but want to preserve collateral availability.
For growing mid-sized businesses, combining Junior Capital with ABL provides a complete, scalable financing solution—offering both operational liquidity and long-term funding for strategic plans.
Frequently Asked Questions
Junior Capital Loans, or subordinated debt, sit below senior loans in priority. They typically carry higher interest rates and are unsecured or second-lien, but they provide greater flexibility and require no immediate equity dilution.
Yes. Junior Capital is commonly layered beneath an ABL structure to increase total liquidity. This combination allows you to fully leverage your asset base while accessing growth capital beyond your ABL borrowing base.
Common uses include funding acquisitions, shareholder buyouts, recapitalizations, or growth initiatives. It’s especially useful when senior debt capacity is exhausted but equity dilution is not desirable.
Repayment is typically structured with interest-only payments during the loan term, and principal due at maturity. Some may offer payment-in-kind (PIK) interest or flexible terms tied to performance or milestones.
Usually not. Junior Capital Loans are often unsecured or secured via a second lien behind senior lenders. This makes them a good option for businesses that cannot or prefer not to pledge additional assets.
Junior Capital structures are carefully coordinated to avoid conflicts with senior lenders. Intercreditor agreements are often established to outline repayment priority and terms of cooperation between lenders.
Costs typically include a higher interest rate (due to subordination), origination fees, and sometimes warrants or equity kickers depending on the deal structure. However, it's usually less costly than issuing new equity.
Mid-market companies with strong cash flow and limited senior debt availability benefit the most—especially those pursuing acquisitions, growth plans, or internal transitions while preserving equity ownership.