Mezzanine financing is a non-traditional type of loan which combines equity and debt for a lender, and in the event of a business failure, it will carry lower priority than other forms of debt. Since mezzanine loans are a hybrid product that includes both debt and equity, the arrangement can provide an equity interest to a lender.
These types of loans will generally come at a higher cost than conventional loans do, and they will sometimes include equity exposure in addition to the interest rate which is applied. Borrowers will generally have several options to choose from to accomplish repayment, and these options are also non-traditional.
Advantages of Mezzanine Loans
One of the biggest advantages of mezzanine financing is that borrowers will quickly be able to acquire the funding they need for business expansion or to make some large purchases they need. Rather than giving up significant equity in the business to acquire the loan, borrowers generally will be able to minimize equity dilution. In addition, the interest payments on the loan are often deductible for the business, so that represents significant savings.
The repayment options can work to the advantage of a business very strongly. Borrowers might want to pay interest charges by using cash, or by adding them to the loan balance. It will also be possible to provide something similar to actual equity to the lender to help pay off the loan. Mezzanine financing also benefits a company’s capital structure, because it appears as equity on a balance sheet. This will enable a borrower to have a lower debt level, so they are better qualified for other types of loans.
Contact us
If you’d like to learn more about mezzanine financing and how it can help your business, please contact us at Critical Capital Solutions. We’ll be glad to discuss how it can provide real value to your business, and contribute to your growth.