Mezzanine Financing
Mezzanine Financing is a type of financing that is used by businesses to secure a loan but require less equity than traditional financing. This type of financing can often be seen by companies who are looking to expand the business, enter a new market or acquire another company.
What is mezzanine financing? Get a better understanding of how it works.
What they are
Mezzanine financing is a type of financing that is used by businesses to secure a loan but require less equity than traditional financing. As well as this it is also often used by companies who are looking for a larger loan then traditional financing can provide.
Common Uses
Mezzanine financing is commonly used in scenarios where a company is looking to expand rapidly or acquire another business but does not want to dilute ownership with additional equity funding.
How they work
Mezzanine financing combines elements of debt and equity. Typically, businesses use mezzanine loans to fund expansion or other growth opportunities. The loan is often structured as a subordinated debt, meaning the traditional loan takes priority.
Looking Into Mezzanine Financing?
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The Benefits
Here are just a few of the many benefits of mezzanine financing.
Access to Larger Capital
Mezzanine financing allows businesses to access a larger amount of capital that they could not usually get through traditional loans.
Less Equity Dilution
This type of financing means that companies can raise capital without issuing more shares and can maintain a higher percentage of ownership.
Flexible Repayment Terms
Mezzanine financing often comes with flexible repayment terms, often allowing businesses to pay interest only for a period of time or pay a lump sum at the end of the loan term.
No security Requirement
Unlike traditional loans, mezzanine financing is often unsecured meaning the business does not need to use assets as security.
Potential Downsides
Explore the drawbacks of mezzanine financing.
High Interest Rates
As this type of loan is usually unsecured, the interest rates are higher due to the increased risk that the lender is taking on.
Repayment Pressure
Although the repayment terms are flexible, this type of loan can have a shorter repayment period than traditional loans, which can put pressure on the business.
Increased Risk of Default
Due to it being classed as a subordinated debt, if the business defaults on the loan, the lender may not be able to recover their investment. This can lead to a loss of equity for the business.
Complex Structure
In some cases, mezzanine lenders may require some degree of control over the company's operations as part of the financing agreement. This can range from board representation to specific restrictions on how the business uses its funds.
Require Mezzanine Financing?
At Try Financial, we understand that securing the right financing to help your business grow can be complex. That's why we're here to help you navigate the world of mezzanine financing. Our team will work closely with you to identify the best solution, providing the capital needed to expand or acquire new assets while maintaining control of your business.
