When it comes to taking on debt to advance your business, sometimes it’s best to have a slice of each world, which, in the realm of business finance, means splitting your baskets into debt and equity. This is the function of a mezzanine loan; it helps out businesses that may be unable to secure from a loan the total amount needed to fund a project or company advancement.
Mezzanine Loans: The Details
This type of loan is squarely in the class of creative financing, since there are all types of possibilities and breakdowns – depending on the lending company, and the needs of your business. If you can’t secure a traditional to cover the total cost of something, then this form of creative financing exists to accept some equity in exchange for the money you need. You should expect to pay higher rates of interest for virtually any type of mezzanine loan that you receive – however, this is buttressed a bit by the more flexible terms of repayment.
Main Use of a Mezzanine Loan
The primary utility of this type of loan services companies that have a record of success. By this time, perhaps most of your working capital is already tied up in business-related ventures, but you see an opportunity to make an acquisition that could propel you to the top of your industry. It is for this that the mezzanine loan can swoop in to save the day. As you can expect, the interest rate will be higher than the average loan. You will often also have the option of capitalizing these interest payments so as to keep a higher cash flow for business purposes presently.
You should know that in the event of a default on the mezzanine loan, they are regarded as being lower priority than other types of equity and loan instruments. This means that they are among the last loans to be liquidated in the event of default – which is bad for you if you’re the lender, or if you acquired the business that defaulted.
Contact Bold Growth Solutions today to learn more about mezzanine loans.