Subordinated loan

A subordinated loan (Nachrangdarlehen) is a loan where the lender, in the event of insolvency, is only paid AFTER all other creditors have received their money.

Order of priority in an insolvency:

• 1st rank: secured creditors (bank with a land charge)
• 2nd rank: unsecured creditors (suppliers, employees)
• 3rd rank (subordinated): subordinated lenders
• 4th rank: equity providers (shareholders)

In practice, subordination means: in an insolvency, you almost NEVER get anything back, because the senior creditors use everything up.

Where are subordinated loans found?

• Crowdinvesting (property): platforms such as Exporo, Bergfürst, Zinsbaustein
• Start-up financing: convertible notes
• Mezzanine financing: medium-sized companies

Typical terms:

• Interest: 5–10% per year (sounds attractive!)
• Term: 12–36 months
• Minimum investment: often from €100–500
• No deposit protection, no segregated assets

Warning signs in practice (2023/2024):

• Several crowdinvesting property projects defaulted
• Some investors lost 100% of their stake
• The high interest rates do NOT compensate for the default risk
• Rule of thumb: never more than 5–10% of your portfolio in subordinated loans