Mezzanine finance provides a top-up business loan if you’re struggling to raise enough funds to finance your next business venture. It offers a unique, cost-effective solution that could fill the shortfall between your existing funding arrangement and the cost of the project. It enables businesses to maximise their true growth potential without having to solely rely on one form of finance.
Mezzanine finance combines debt financing with equity investment. This hybrid funding solution is offered by alternative lending providers who will offer a business loan to back your growth venture in return for a share of your profits. Mezzanine finance is used to top up the funds provided by another source, such as existing working capital or a traditional lender.
Mezzanine finance is easier to obtain than traditional forms of lending. Unlike many secured business loans where property or land is offered as security against the loan, business owners are required to offer the lender a stake in the business. Some arrangements only require a return in profits from the funded project, whilst others will see investors acquiring a share in the business.
Some business transactions and ventures are perceived to carry a greater element of risk than others. If a business owner cannot raise enough funds via traditional lending methods, mezzanine finance exists to cover the shortfall. Equity investors are typically less risk-averse than traditional lenders and more inclined to support entrepreneurial ventures. Their main goal is focused on growth so they tend to invest in companies that have a good potential for expansion or high sale value.
There are a variety of ways in which mezzanine finance works. In all cases, business equity is offered as security against the loan. Funds will be offered with interest and if the business is unable to repay the loan, the shares used to secure the loan will be taken to settle any outstandings. Some lenders require a share of the profits raised through the venture and, if the loan is settled within the agreed timeframe, the lender will not seek to own any shares at the end of the term. Depending on the amount required and level of perceived risk, some lenders will request company shares. They view the arrangement as an investment and will look to maximise their return based on ongoing growth.
Mezzanine finance offers an attractive form of alternative finance for businesses involved in acquisitions and buyouts, as well as those with plans for rapid expansion. It is typically used to fund high value projects that demonstrate a good return, making the proposition attractive to alternative lending providers.
Mezzanine finance is generally considered to be a cost-effective funding option for growing businesses. Unlike traditional finance arrangements, which are paid back in regular monthly instalments, mezzanine finance can be repaid annually and some arrangements involve small intermediate repayments followed by a lump sum settlement at the end of the term. This helps businesses to manage their cashflow throughout the year. As mezzanine finance is backed by equity, it is usually easier and quicker to arrange than traditional forms of lending.
If you need to source additional funds to finance a new project, please complete our online application and you will receive a decision from our specialist mezzanine team within twenty-four hours.
A mezzanine finance arrangement is usually sourced for large projects with a high element of associated risk, such as a new acquisition or a move into new markets. If your business has not been able to secure enough funds via other loan arrangements, mezzanine finance could offer the right solution for your business and future objectives.