Mezzanine Financing Made Simple
A theatrical name for a rather simple concept, mezzanine financing works well for small business owners who wish to secure the much-needed cash they need for the growth of their company. The lenders invest in the business, which ensures that all parties have the business’ expansion in their best interest. This loan is not a traditional bank loan, so it’s wise to understand mezzanine lending to ensure that this financing option will work best for you.
How the Money Is Used
The money is used to expand a business, but there are a couple of ways in which the growth can occur. Some businesses expand physically, by purchasing new real estate or adding on to existing facilities; other businesses acquire their competitors, and increase their facilities, employees, and clientele through the existing business. Mezzanine financing funds either scenario, so the small business can grow in scope and size and take itself to the next level.
How the Money Is Borrowed
You don’t go through a traditional loan application process to secure a mezzanine loan. Rather, you contact wealthy individuals who lend you the cash. These financers also purchase stock within your company to provide you with additional liquidity and them with an investment in your projected profits. You still have to pay the borrowed funds back, but the investment in your dream is worth the mezzanine financing, because most of these lenders are skilled in expansion and acquisitions.
So, who are these lenders? They are banks, insurance companies, mutual funds, pension funds, and private investors, and many of these people are liberal with their money. In fact, most tailor it to your specific needs, because if you don’t succeed, they don’t succeed. Nobody wants a loss in his or her portfolio, so as long as your business grows and the lender’s yield is satisfied, he or she will likely be flexible with interest rates and payment terms.
Mezzanine financing provides a way for small businesses to grow. The business owner may lose some control of the operation, as the lenders do invest in the business and gain ownership share, but the pros definitely outweigh the cons. Investment in any business gives it a better stronghold within its industry and the financial markets, and once your business starts to grow, the sky is the limit. This is why this type of funding isn’t only an investment in your business; it’s an investment in the economy and your future, as well.