Growth Accelerant: How to Turbo-Charge Your Business with Mezzanine Debt

Posted on: October 14th, 2016

Say a typical company spots an opportunity for growth. Let us imagine that this growth is about sales and marketing expansion. While expanding to a new location by adding a single salesperson does add to the revenue that your company earns, it takes time to show up in the records.

If you pay the employee you just hired for that new location, you will be using more of your credit line than you do normally. Then you realize something else — the increase in revenue would be much more significant, if your company adds many sales people at the same time.

This type of expansion can be described a large scale, all-at-once expansion. However, for an all-at-once expansion, you will need funding beyond what you can draw under your line of credit.

A loan from a bank will only be in your cards, if you can show the lender that the newly expanded team will begin paying for themselves within a short time- usually a few quarters. Why not try something else, such as mezzanine financing?

Mezzanine debt has been in use for more than 3 decades. It bridges the gap that existed between equity and senior debt holders, hence the name. It can be an ideal growth accelerant for your business for the following reasons:

Unlike senior loans, mezzanine financing is non-amortizing, which means no principal repayment and more funds available for growth.
The very temporary nature of mezzanine means that it won’t be a long-term shareholder. In most cases, whoever is at the helm does not have to abdicate control unlike equity.
When your company only has to pay the interest on the debt for five years, it can use the capital that it gains to keep growing. The growth cycle builds on itself because you have more cash in the business.

If you are still unsure whether mezzanine funding is the right choice for your company, let Attract Capital assist you. Once they calculate your company’s mezzanine debt capacity, you will know how fast mezzanine debt financing will help your company grow. Drop them a line at [email protected] today!

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.