Adding Value to Your Business Through Mezzanine Loans

Posted on: April 6th, 2016

Mezzanine Loan

Israeli Hiker, Laurie Rimon, had an unexpected turn of events when hiking with friends in the eastern Galilee where she found a tiny, shiny object in the grass.

This object was a 2,000-year-old Roman coin that is only the second of its kind found in the whole world. The coin, from AD107 and minted by Emperor Trajan, has an image of Emperor Augustus on one side. It is not everyday that someone discovers such an amazing and rare item such as this. This item’s scarcity is what makes it so uber-valuable.

A mezzanine loan is an often unheard-of entity that is a great place to boost the value of your company while, at the same time, allowing for its potential growth. Mezzanine loans provide 100% of the funding needed for an acquisition or buyout. This gives your company the flexibility it needs to invest in the development of strategies and opportunities.

Lenders evaluate your creditworthiness based on the stability of your company’s cash flow over time. If your company has a strong cash flow, a plausible loan amount will be created as a multiple of your company’s EBITDA. The lower the multiple, the better.

Mezzanine lenders receive their return on investment through interest rates primarily, and then upside on their warrants. Finding the right mezzanine loan that fits your business will help your company become part of the rare group of prized businesses.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.