The Complementary Capital Partner: How Short-Term Subordinated Debt Strengthens Your Client Relationships
You've spent years building your ABL portfolio around disciplined underwriting, solid collateral coverage, and advance rates that protect your position. But borrowers' capital needs don't line up neatly with borrowing base calculations. Acquisitions move faster than covenant amendments. Customer concentration shifts between field exams. Revenue fluctuates while fixed costs stay the same.
When these moments hit, your clients need more capital. Where they find it, and on what terms, determines whether you keep a healthy relationship or end up managing a deteriorating credit.
The Partnership Reality
When your borrowers need capital beyond your facility, you've seen how this plays out:
Scenario One: They go to another ABL lender for a bigger facility. You lose the relationship entirely.
Scenario Two: They find an online lender or MCA provider with terms that crush their cash flow and spike your portfolio risk. You keep the relationship but watch the credit quality slide.
Scenario Three: They work with a subordinated debt partner who gets your position, operates within intercreditor frameworks you recognize, and provides capital that helps rather than hurts the business.
That third scenario needs a relationship with someone whose model actually aligns with yours, supporting business growth while respecting your primacy as senior lender.
Control Over Your Clients' Growth
Here's something we don't talk about enough, the control a subordinated partner gives over your clients' growth.
Without a partner: Your client needs $5MM for an acquisition. Your borrowing base supports $3MM. They've got three choices: kill the deal, find a bigger ABL facility elsewhere, or cobble together capital from multiple sources, usually ending up with a lender whose aggressive terms you'll be dealing with for the next 18 months.
With a subordinated partner: You provide $3MM through your facility. Your referral partner puts in $2MM as short-term subordinated debt with a 12 to 24-month term. Client closes the acquisition, your relationship stays put, and you've structured the subordinated piece to amortize or refinance once the acquisition's cash flows justify a larger borrowing base.
This isn't just relationship retention. It's maintaining influence over how your client capitalizes their growth. You stay as their primary bank. You coordinate the capital structure. You decide when subordinated debt makes sense versus when to pass on an opportunity outside your risk appetite.
This shifts you from "the ABL lender" to "the strategic capital advisor", someone who helps clients access the full range of financing they need.
Stop Your Clients from Shopping the Market
Every time your borrower needs capital beyond your facility and has to run an RFP, contacting multiple lenders, preparing presentations, negotiating competing term sheets, several things happen, and none of them are ideal or beneficial:
For you:
Competing lenders learning about your borrower's business
Risk of getting refinanced out by a bigger ABL facility
New lenders coming in with aggressive terms or messy intercreditor practices
Loss of control over the borrower's capital decisions
For the relationship:
Trust erodes as borrower wonders if you can support their growth
Your facility becomes commoditized as they shop for "best price"
Higher likelihood they eventually move the whole relationship
A referral relationship short-circuits all of this. When capital needs come up that exceed your box, you make one introduction. Your partner underwrites quickly, structures subordinated debt that fits with your facility, and coordinates documentation with your credit agreement. No broad RFP. No competitor education. No relationship risk.
When Revenue Drops Unexpectedly
Revenue volatility is one of the most common middle-market lending challenges. When revenue drops, your borrowing base usually contracts right when the borrower needs capital most.
Short-term subordinated debt provides the release valve. When revenue drops, customer bankruptcy, supply chain disruption, competitive pressure, subordinated capital plugs the hole while they stabilize. This preserves their ability to pay you and gives them runway to address operational issues without forcing a premature refinancing conversation.
Without subordinated capital: Q1: Revenue drops 20% → Q2: Borrowing base contracts, covenants violated → Q3: Borrower forced to refinance everything → Q4: You lost the relationship or you're managing deteriorating credit
With subordinated capital: Q1: Revenue drops 20% → Q2: Subordinated partner provides bridge capital → Q3: Borrower stabilizes revenue → Q4: Subordinated debt refinances as borrowing base recovers
From your perspective: fewer emergencies, less frequent amendments, stronger credit quality throughout.
Bridge to Liquidity Events
Many of your best relationships end with a successful exit; strategic sale, refinancing into institutional capital, generational transition. But the path there is fragile. Businesses entering sale processes from strength command premium valuations. Companies forced to sell in distress leave everyone with suboptimal recoveries.
Short-term subordinated debt bridges gaps between current constraints and future refinancing or exit:
Bridge to institutional refinancing: Client 12-18 months from being attractive to direct lenders needs capital today for acquisition that will grow EBITDA enough for institutional refinancing
Bridge to strategic sale: Client considering sale in 18-24 months needs capital now to maintain growth momentum and optimize valuation
Bridge to generational transition: Business needs capital for buyout but structure isn't ready for permanent institutional capital
Bridge to borrowing base expansion: Client won major contract that will expand borrowing base in 12 months but needs capital now to fulfill it
In each case, short-term subordinated debt protects the value trajectory by providing flexibility during transitions.
Building Portfolio Resilience
While the ABL market continues growing, your borrowers face increasing complexity and capital needs that don't fit borrowing base formulas.
Strategic relationships with subordinated debt partners let you:
- Retain relationships you'd otherwise lose to larger facilities or competing lenders
- Improve credit quality by giving borrowers access to supplemental liquidity during stress
- Maintain control over clients' growth trajectory and capital decisions
- Protect exit values by helping borrowers bridge to successful liquidity events from strength
- Differentiate your offering by positioning yourself as a relationship bank with access to full capital solutions
Most importantly, you position yourself as your borrower's strategic advisor, someone who helps them access the full spectrum of capital they need.
The Flexibility That Actually Matters
Not all subordinated debt works the same way. Here's what makes the difference:
Non-Dilutive Capital That Preserves Equity
Real subordinated debt doesn't dilute ownership. This keeps management incentives aligned with success, preserves enterprise value for future exits that repay your facility, and maintains clean ownership for eventual sale or refinancing.
Minimal Covenants and Unrestricted Use
Subordinated debt with minimal covenants and unrestricted use gives your clients real flexibility, strategic acquisitions, inventory builds, equipment purchases, marketing investments, working capital during temporary revenue hits, refinancing expensive capital, any legitimate business purpose that drives growth.
Clients can move fast without waiting for ABL amendments or negotiating use restrictions with multiple lenders. And you're not managing conflicts between your covenants and a subordinated lender's covenants.
Clean Subordination to Your Position
Real subordinated debt gives you clean subordination: full lien subordination on all collateral, payment subordination with clear waterfalls, standstill provisions that stop junior enforcement while your debt performs, and senior control over amendments, waivers, and enforcement.
This means faster execution with standard intercreditor terms banks already approve, no ongoing coordination during normal operations, and clear senior control if stress emerges.
Industry Breadth Across Verticals
Having a subordinated partner who can support clients across your entire book, not just favored sectors, means you can offer comprehensive solutions to all your relationships. This matters particularly for middle-market ABL lenders whose edge often comes from industry expertise in specific verticals.
Your clients need more capital than your credit box allows. The question is whether they find it from a partner who strengthens your position, or from someone who doesn't.
How Fora Financial Delivers on the Partnership Model
We built Fora Financial to be the kind of subordinated debt partner that strengthens rather than threatens senior lender relationships. Since 2008, we've distributed over $4 billion to 55,000+ businesses nationwide, with a significant portion deployed alongside ABL lenders, factors, and other senior secured creditors.
Complete Flexibility Where It Matters:
Non-dilutive structure: Pure debt, no equity participation, no warrants
Minimal covenants, unrestricted use: No maintenance covenants or deployment restrictions
Clean subordination: Full subordination to senior secured lenders with standard market terms
Prepayment economics: Discounts that can reduce effective costs to as low as 10% APR
Industry breadth: Work across 100+ industries and verticals
Building a referral relationship with a subordinated debt partner isn't about outsourcing deals you can't do. It's about maintaining control over your clients' growth, protecting relationships you want to keep, improving credit quality across your portfolio, and positioning yourself as a strategic advisor who coordinates the full capital stack your clients need to succeed.
