---
title: "What Is Senior Debt?"
term: "Senior Debt"
description: "Senior debt is the first-ranking borrowed money in a capital structure — secured lenders with top priority on collateral and repayment before subordinated debt and equity in a default or sale."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/senior-debt
---

# What Is Senior Debt?

> Senior debt is the first-ranking borrowed money in a capital structure — secured lenders with top priority on collateral and repayment before subordinated debt and equity in a default or sale.

**Senior debt** sits at the top of the repayment stack — the lenders who get first claim on cash and pledged assets when things go wrong or a sale proceeds are limited.

## How it works

Banks and specialty lenders extend senior facilities: term loans, revolvers, or venture debt with first-lien [security interest](/glossary/security-interest) on company assets. Rates reflect credit quality, often floating off benchmarks like [SOFR](/glossary/sofr) plus a spread.

Covenants may require minimum cash, revenue milestones, or restrict additional debt. Maturity dates create refinancing risk — a wall of debt due in 18 months forces action even if equity markets are shut.

In an acquisition, senior lenders must be repaid or consent to the transaction. Equity holders only receive what remains after debt satisfaction and transaction costs.

## Why it matters

- **Founders:** Venture debt can extend runway without dilution but is not free money — default triggers can wipe equity quickly.
- **Investors:** Waterfall models must layer senior debt above preferred. Heavy leverage compresses common outcomes in moderate exits.

## Common mistake

Raising senior debt to avoid a down round without modeling a scenario where revenue misses and covenants accelerate repayment.

## Related ideas

- [Second lien](/glossary/second-lien)
- [Security interest](/glossary/security-interest)
- Venture debt vs equity financing

## FAQ

### What is Senior Debt in simple terms?

If the company fails or sells for less than hoped, senior lenders get paid first from available cash and collateral. Everyone else — second lien, unsecured creditors, preferred, common — waits in line behind them.

### Why does Senior Debt matter?

It adds non-dilutive capital but increases fixed obligations and can constrain exits. Investors check covenants, maturity walls, and how senior debt interacts with liquidation preferences.


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Source: https://venturecapitaltracker.com/glossary/senior-debt