A comparison of Mezzanine with other forms of financing
There are many different types of financing options for a business. Financing can be used to expand the business, merge or acquire another business, buyout a shareholder, and reliquify the balance sheet. The funding option that best fits your business will depend on several different factors:
Mezzanine Financing: Mezzanine lenders realize the potential in long-term growth of your company. These lenders create loans based on cash flow. In other words, mezzanine lenders focus on ensuring the generation of cash flow to pay back the principal. A business that can generate high returns from financing would be the best candidate for a mezzanine loan. Mezzanine financing deliver strong long term value at a reduced cost than expensive equity financing.
Asset-Based Financing: An asset-based lender creates a structured term loan that is secured by the assets held by the company. The assets that can be loaned against may be accounts receivable, inventory, machinery, equipment, real estate, or another physical asset of the company. A business with a strong balance sheet that is rich in assets would be a perfect fit for an asset-based lender. There is an abundance of prime and sub-prime lenders in this market, broken down by loan size that can help finance your business.
Unitranche Debt: Unitranche debt combines features of both mezzanine and senior debt. This type of financing is useful for companies that cannot obtain the necessary funding from senior debt to complete a transaction. This structure is popular with private equity buy outs and other acquisition driven scenarios.
Senior Cash Flow Debt: Senior cash flow, or bank term debt, relies on a company‚Äôs future cash flows and its underlying collateral value for the loan. Senior cash flow debt is applicable for a business that has a healthy level of cash generation, couple with strong receivable, inventory or equipment value.
Growth Equity: The purpose of a growth equity is to help a company accelerate future growth. This type of financing requires an investor to be involved in the decision-making process of the business by bringing expertise, important relationships, and capital that will be used for the expansion of the company. Growth Equity is beneficial to technology companies that can grow at a 10x rate over the next 5 years.