Mezzanine financing, a type of junior capital found between senior debt and equity. It allows businesses to access capital to achieve their goals. This type of financing allows business owners to raise a significant amount of cash without liquidity or give up a large stake in the company.
Borrowing this type of financing is costly compared to senior debt, it is also patient. Patient, meaning it comes with a longer-term before the maturity date. This aspect of patience is one of the things that attracts entrepreneurs to mezzanine financing. For most companies, the mezzanine is not seen as permanent capital but rather solution-oriented capital for a specific purpose.
Uses of Mezzanine Financing
Instead of turning to senior debt or equity to fulfill various capital needs, companies can use mezzanine financing. It is a patient source of funds allowing businesses to grow. Whether by expanding the facility or any other need. Some of the transactions one can do with this type of financing include:
Balance sheet optimization or restructuring
As mentioned earlier, this type of financing is more costly than senior debt but cheaper than equity. The mezzanine is often considered a subordinated debt. meaning in case the company is declared bankrupt, it will not be among the first debts to be repaid.
Pros of Mezzanine Financing
Some of the advantages of mezzanine financing include:
-Mezzanine financing offers a lot of flexibility (reduced amortization, flexible financial covenant, and few restrictions) compared to traditional banks. This allows the company to achieve goals that need financing.
-Less costly but also less dilutive compared to direct equity issuance.
-It offers an alternative source of money for equity and senior debt.
-Costly that senior debt
-Although small, it involves a form of equity dilution, which can be in the form of attached warrants.
-Mezzanine financing terms include creditor rights and financial covenants.
When looking for a mezzanine financing institution, choose a strong partner that shares the same goals as you. That way, even when they are making decisions, it is with the interest of the company in mind. Park Cedar Commercial Lending can be your financing partner if you are looking for additional capital. Contact us today and get to know how mezzanine financing can work for you.