Subordinated financing

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How Subordinated Financing Helps Bridge the Gap in a Stricter Banking Environment





Small and medium-sized enterprises (SMEs) and real estate developers in Switzerland face a clear reality: access to bank credit has tightened considerably. Capital requirements, prudential ratios, and the strict implementation of Basel recommendations are pushing banks to limit their exposure and ration credit—even for solid borrowers.





In this context, subordinated financing—such as mezzanine loans, junior debt, or convertible bonds—emerges as a strategic tool to bridge capital needs.










Banking Rationing: A Reality for SMEs and Real Estate Projects





According to a SECO study, nearly 10% of Swiss SMEs with financing needs no longer even dare to apply to their bank, fearing rejection or overly burdensome procedures. Stricter requirements regarding collateral and ratios (liquidity, leverage, repayment capacity) reinforce this trend.





Bank financing remains central, but often insufficient: mortgages typically cover 60–70% of a project’s value. The balance must be financed with equity. It is precisely in this “missing space” that subordinated financing proves its relevance.










Subordinated Financing: A Flexible Solution





The principle is simple: an investor or specialized platform provides a loan that comes after bank debt (“subordinated”) but before equity. This position in the creditor hierarchy implies a higher return, but it also offers several advantages:














The Most Affected Sectors














Risks and Caution





Subordinated financing is not without risks. Its cost is higher than traditional bank credit, and repayment depends on the company’s actual ability to generate future cash flows. Financial analysis, the robustness of the business plan, and transparency of information (ratios, balance sheet notes, minutes of general meetings) remain essential.










The Role of PrestaFlex





As an independent financing expert, PrestaFlex helps businesses structure these types of transactions. We support our clients in:









In an increasingly restrictive banking environment, subordinated financing is becoming a vital tool to turn stalled projects into concrete successes.





An article by Munur Aslan, Managing Director of PrestaFlex







  


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  1. Blog

How Subordinated Financing Helps Bridge the Gap in a Stricter Banking Environment

Small and medium-sized enterprises (SMEs) and real estate developers in Switzerland face a clear reality: access to bank credit has tightened considerably. Capital requirements, prudential ratios, and the strict implementation of Basel recommendations are pushing banks to limit their exposure and ration credit—even for solid borrowers.

In this context, subordinated financing—such as mezzanine loans, junior debt, or convertible bonds—emerges as a strategic tool to bridge capital needs.

Banking Rationing: A Reality for SMEs and Real Estate Projects

According to a SECO study, nearly 10% of Swiss SMEs with financing needs no longer even dare to apply to their bank, fearing rejection or overly burdensome procedures. Stricter requirements regarding collateral and ratios (liquidity, leverage, repayment capacity) reinforce this trend.

Bank financing remains central, but often insufficient: mortgages typically cover 60–70% of a project’s value. The balance must be financed with equity. It is precisely in this “missing space” that subordinated financing proves its relevance.

Subordinated Financing: A Flexible Solution

The principle is simple: an investor or specialized platform provides a loan that comes after bank debt (“subordinated”) but before equity. This position in the creditor hierarchy implies a higher return, but it also offers several advantages:

  • Leverage effect: companies can complement their own equity and access larger overall financing.
  • Flexibility: mezzanine loans are negotiated with adaptable terms (often 12 to 36 months) and structures tailored to the project’s needs.
  • Control retention: unlike opening equity to a private equity investor, subordinated financing allows entrepreneurs to remain in charge.
  • Diversification of financing sources: in a market where banks still provide over 80% of SME lending, diversifying financial partners reduces dependency risk.

The Most Affected Sectors

  • Real estate: land acquisition, construction financing, or project refinancing. Mezzanine financing fits between the bank mortgage and the developer’s equity.
  • Growing SMEs: family-owned or innovative companies needing to fund rapid expansion or acquisitions but lacking sufficient equity.
  • Strategic transitions: business succession, buyouts of minority shareholders, or MBO/MBI operations.

Risks and Caution

Subordinated financing is not without risks. Its cost is higher than traditional bank credit, and repayment depends on the company’s actual ability to generate future cash flows. Financial analysis, the robustness of the business plan, and transparency of information (ratios, balance sheet notes, minutes of general meetings) remain essential.

The Role of PrestaFlex

As an independent financing expert, PrestaFlex helps businesses structure these types of transactions. We support our clients in:

  • Negotiating the right balance between senior debt, subordinated debt, and equity.
  • Identifying specialized partners (mezzanine funds, family offices, investment platforms).
  • Securing conditions by integrating risk criteria, confidentiality, and project sustainability.

In an increasingly restrictive banking environment, subordinated financing is becoming a vital tool to turn stalled projects into concrete successes.

An article by Munur Aslan, Managing Director of PrestaFlex

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