Get access to funds while you’re waiting for long-term financing with mezzanine finance.
Mezzanine finance is a cross between loan and equity financing which gives the lender the right to convert to an equity interest in your company in the event of defaults. It is a way for your company to implement an ownership or management changeover while allowing existing stakeholders to increase ownership interest.
what DOES IT COVER?
Lenders or investors may generally gain equity in your business through mezzanine finance. The financing providers also receive monthly, quarterly, or annual interest payments which is obligatory. The interest from mezzanine financing is tax-deductible which is why a lot of companies prefer taking it on. It is significantly manageable compared to other loan structures, and if you are unable to make a scheduled interest payment, part of or all of the interest may be deferred, which is not the case for other types of loans. It is ultimately solution-oriented which may later be replaced with other financing options, if and when required.
HOW DOES IT WORK?
Mezzanine finance offers some of the highest returns as compared to other loan structures, which receives rates that can go as high as 30%.
If your company is seeking assistance with acquisitions or funding for growth projects on a short-to-medium time frame, mezzanine financing might be the right choice for you. These loans are commonly provided by existing capital funders or long-term investors.
Mezzanine finance loans are secondary to senior loans, but have significance over both common and preferred stock. It offers numerous benefits for the investor. Often, a mezzanine financing will include a slice of ownership, or an option (warrants), which enables the investor to purchase equity in the company later on in the future. If your company becomes successful, this may actually pay out several times more than the borrowed amount.
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