Mezzanine funding as a source of financing for growth expansion, accusations and mergers, recapitalizations or for management and leveraged buyouts has been around for more than three decades. However, many small and mid-sized businesses are still unaware — or although aware, are a bit apprehensive — of the benefits of mezzanine financing as a funding option.
What exactly is mezzanine financing?
Financial experts describe mezzanine finance as similar to the mezzanine layer in a building where the debt capital belongs to a layer of financing that lies between a company’s senior debt and equity. Companies generally seek mezzanine debt during a transitional phase when they need more capital since mezzanine financing can bring in more financing than a traditional bank loan. In this vein, mezzanine financing can be described as transitional capital that enables rapid growth in a short period of time.
How can a small or mid-sized business benefit from mezzanine financing?
Small and mid-sized businesses can benefit immensely from using mezzanine financing as funds for growth capital, recapitalizations or corporate restructurings, because,
1) The mezzanine loan size is based the company’s cash flow value not asset value. With the standard mezzanine debt multiple being 4 to 4.5 times EBITDA, a company is able to avail a greater amount of capital when compared to a bank loan.
2) Mezzanine financing is long-term patient capital requiring no personal guarantees. Most loans last for 5 to 6 years, and usually require only interest payments with no principal payments for the first 3 to 4 years. Mezzanine financing may also come with the option to exit at the end of the term in one lump sum through a refinancing with a more traditional commercial loan.
3) Mezzanine finance is extremely flexible. Mezzanine loan structures are more flexible than a bank and less intrusive than an equity investor, thereby offering an excellent solution for small and mid-sized companies to gain increased capital without going public or relinquishing control.
Attract Capital has more than 25 years of experience in providing consulting services and bespoke mezzanine debt solutions. Our debt solutions are quoted on a project basis and, if structured with our tool suite, can provide 100% of the capital needed for a transaction. Please call us at 631-689-5713 for a free consultation.