Mezzanine financing is a type of loan that blends equity and debt. This type of loan sits between senior debt and equity. In other words, when a company has already maximized their borrowing capacity, and they need funding, they can turn to mezzanine financing.

How Mezzanine Loans Work

There are different arrangements under mezzanine financing, but they all involve a combination of lending from a financier and the provision of equity by a borrower. Basically, one borrows money, and the lender gets the authorization to convert the loan or part of it to stock in case of default or at the time of their choosing. Most mezzanine lenders often work with businesses that have a good track record. For instance, a borrower can use this type of loan to either expand operations or acquire a business that is profitable already.

Advantages of Mezzanine Financing

Access to Capital. The borrower gets the financing they need to continue operations or acquire another business.
Mezzanine lenders can offer valuable and strategic assistance.
Most lenders entering into this arrangement are long-term investors and not just there for a quick killing. Therefore, they are likely to be a big asset to your company.
The business owner does not lose control over their business. As long as the company keeps prospering, the lender will not interfere.
Mezzanine financing can increase the value of the company.

Disadvantages of Mezzanine Financing

If projections fail to work as expected or the equity portion is significant enough to give the lender a bigger share, then a business owner may end up losing control over their business.
At times, agreeing to mezzanine financing may force you to accept restrictions like how that money will be spent and in which areas.
Most agreements of subordinated debt come with restrictive covenants. For instance, one of the restrictions may state the borrower cannot borrow more cash.
This type of lending may be more costly than senior debts

Mezzanine Financing Can Help

When looking for mezzanine financing, the most important thing is to find a lender that supports your company’s goals. Here at Jasema Capital, we can offer your business that opportunity for growth. Contact us today for funding, and we will help you expand your business.