Hybrid of debt and equity can be called as mezzanine financing. Companies can avail such finance for the improvement or expansion of their business. You do not need to complete a lengthy paperwork process to avail such personal finances, and there is no collateral required for such loans either.
Financial institutions usually offer these loans based on the equity or shares of the company. If you are not able to repay the amount on time, then the lender will get the ownership or equity interest in the company. As these loans are provided without any security deposits, the lenders usually charge higher rate of interest and they are offered for short term only.
What is Mezzanine Financing?
Normally, banks and financial institutions provide you loans on the basis of the cash flow of your business. If your business does not produce sufficient or steady income, then you stand no chance of getting any financial assistance from them. In such cases, companies tend to sell their equity to the open market to arrange their capital money for their business expansion.
It is a very risky decision for the company because such equities can be exchanged anytime with your business capital and your ownership gets transferred to other stakeholders automatically. In this regard, you can go for mezzanine financing because banks or private lenders can provide you sufficient amount of loans on your company shares or equity. You do not need to transfer your company ownership to them, until you pay them the full amount with interest.
How would you Get Mezzanine Financing?
- To apply for mezzanine financing, you need to produce a strong business record along with a good reputation. Banks and lenders will check the track records of your business and if they find your business in profits, then they can finance you for your business expansion. Apart from that, the history of your company’s profitability also matters a lot. Banks check your repayment capacity before disbursing the loan.
- Sometime, companies do their business expansion by acquiring other businesses of companies, and they usually do this on an Initial Public Offering or IPO. If you want to expand your business in such way, then mezzanine financing is the best option for you. This kind of loan allows you to acquire a new business or company and make some profits from that particular branch to repay the loan.
- These loans can offer you more flexibility and you can transfer your cash flow to the loan account anytime as per your preference. Along with that, lenders always look for some long term investors for such financing. If you have a steady business, then you will get such loans within a short period of time.
- Even financial advisors of the lenders can provide you fresh insights to change your business strategies. They can help you get some great deals for your business growth. This is a completely free support which is provided by the lenders in the case of such loans.
- Mezzanine financing can also increase the stock value of your business. As a result, you get more investors and stakeholders for your business in future. Such loans can be expensive for you, but if you do not have any other options and you are determined to expand your business in a secure way, then you have to go for such loans.
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Banks and private lenders may take some time to provide mezzanine financing, because this is an insecure loan and they need to verify your business profile before disbursing the loan. But once you get the loan, you can easily invest the amount for your business expansion and increase your profit rate significantly.