An Alternate Form of Financing
When companies are looking to take big steps, ones that require a substantial amount of capital, there are a few different options by which they can fund those steps. These kinds of steps are the ones that make it into the finance pages: buyouts, corporate expansion, or large-scale distributions of funds such as to shareholders. When a company plans this kind of step and either does not have the funds available or does not want to bring in new equity partners, an option they may choose to pursue is mezzanine financing.
What It Is
Sitting right on the border between equity and debt financing, this variety of funding is a very high-risk form of investment but offers investors a chance for a big profit. One of the ways that this type of loan supports the growth or expansion of a company is that, unlike more traditional loans, it typically does not require repayment during the loan term itself. Instead, the funds are available for the company to take full advantage of during the term, and then, at the end of the term, when (presumably) the company has successfully made its expansion or purchase and has increased its profits, they will begin to repay the loan.
This type of financing offers a more affordable option than a standard offering of direct equity. While some control will be lost during this type of financing, it does not amount to the same loss of control or dilution of equity that would be found during increasing outside equity, so in that sense, it is a far more preferable form of increasing funding.
Make it Work for You
If your business can no longer be considered a startup, but you haven’t quite made it to the point where you have enough funds at your disposal to make the big steps you want to, then you’ve probably been considering the best options for funding that next step. This is a great option since it allows you to maintain control of your company and gives you an extremely flexible source of funds.
Many mezzanine financing lenders are very experienced and flexible, which can provide a huge boon for the company seeking funding. Utilizing the expertise of a good lender, you can expect to develop a solution unique to their goals. This can allow you to focus on your expansion or acquisition goals without worrying about the funding required to do so.