Definition - What does Subordinated Debt mean?
Divestopedia explains Subordinated Debt
Subordinated debt can be a good way for private company owners to obtain growth capital, since the dilutive effect on their company ownership can be minimized despite the equity kickers. Subordinated debt holders need to ensure there is enough free cash flow to service the debt, since the debt is either unsecured or partially secured. Therefore, despite the high interest rate on subordinated debt, if the business is flowing good, consistent free cash flow, it may be best to obtain subordinated debt rather than a pure equity injection.