Mezzanine Financing: How many loans have you done successfully?

Mezzanine financing instruments, which represent a mixed form between equity and debt capital, are considered as the financing alternative particularly to medium-size enterprises, whose financial situation substantially worsened due to the difficult overall economic situation in the last years.


When looking for financing, business owners consider several things, including the amount needed, payback schedule, and obviously the cost. Mezzanine financing offers other benefits to organizations focused on optimizing their capital structures and expanding access to funding. Use that capital for purchases, startup costs, or working capital, if there is a need in your business.


Basically, it is debt capital, with current repayment requirements, but with rights to convert to an ownership or equity interest in a company. Unlike equity, debt requires periodic interest payments and the principal must be repaid upon maturity. Typically, mezzanine providers share in a portion of the projects upside while allowing project owners to retain a significantly greater share of the value created than would typically be the case with permanent capital providers.


Mezzanine finance is appealing to property developers for a number of reasons, when compared with standard debt and equity financing. Mezzanine capital services provide highly customised and structured equity-linked financing for organizations looking for growth opportunities. The process for completing a mezzanine financing transaction may seem daunting, but will leave organizations better off in the long run.


The higher cost of capital associated with mezzanine financing is the result of its being an unsecured, subordinated obligation in a companys capital structure. Mezzanine financing is a form of funding where a debt position is taken that is subordinate to a senior debt facility but ahead of any equity positions. Including mezzanine financing can reduce the overall cost of capital and provide requisite growth capital for a mid-sized business.


A very significant form of company activity determining its development and even survival is innovation activity. organizations in the later stages of development generally have fully vetted business models, put in place a broad, multi-functional team, commercialized their product, and achieved reasonable sales momentum. Mezzanine finance is only available to a developer once the development has been approved and the initial financing facility (or senior debt) is in place (or about to be put in place).


Mezzanine finance refers to capital which sits behind the first-ranking (or senior) debt against a business or property but ahead of any equity investment. Mezzanine financing is treated like equity on a companys balance sheet, which can make it easier to obtain standard bank financing later. In the current financing environment, the market for mezzanine capital is fluid and evolving, and even less defined by a rigid set of standard terms.


Small businesses often seek financing to fill a temporary cash flow gap, cover an unforeseen expense or invest in business growth. Credit standing, mezzanine debt provides additional capital beyond senior secured debt. Mezzanine debt is the layer of financing between a companys senior debt and equity. Lease financing is one of the important sources of medium- and long-term financing where the owner of an asset gives another person, the right to use that asset against periodical payments.

Want to check how your Mezzanine Financing Processes are performing? You don’t know what you don’t know. Find out with our Mezzanine Financing Self Assessment Toolkit: