Whether you have a small deal or a large deal on your hands, mezzanine lenders should be your first option when looking for growth and acquisition capital. The middle market consists of many different types of lenders from local banking sources to government entities such as Small Business Investment Companies (SBICs), public entities such as Business Development Corporations (BDCs), and independent lenders. Depending on the size of the deal, Attract Capital will find the best fit for your next opportunity. The size of the deal dictates where you will find your capital provider. Lower middle market businesses with tinier deals frequently obtain their financial funding from a local bank. However, when prospective growth or a merger/acquisition presents itself, there is a capital shortage from these smaller banking sources. That is where the larger SBICs and BDCs come in. The bigger the deal gets, the bigger the leverage multiple that you receive. Mezzanine lenders base their investment off of a multiple of your company’s EBITDA, or Earnings before Interest, Taxes, Depreciation, and Amortization. Mezzanine providers standard mezzanine debt multiple is about 3.5 times EBITDA. SBIC’s usually tap out at deal sizes of $10 million. They tend also to have a regional focus for their loans. BDC’s are larger pools of capital and usually start at deal sizes of $10 million. BDC’s commonly provide unitranche facilities where they provide both a senior and a junior layer of debt capital.
Mezzanine is a superior form of quasi-equity capital that has structural advantages over bank loans and pricing advantages over equity. Senior debt can be a challenge to attain and opting for equity is not always a favorable alternative. Most equity providers want to own a significant chunk of the business, generally 25% or more. This makes equity an unpalatable option for most growth oriented companies. Mezzanine lenders realize your potential for long-term growth. It requires no principal payments, only interest payments, throughout the first three or four years of the loan. Furthermore, mezzanine loans mature in five to seven years. These factors help to give a company much more flexibility on how it spends the funding it receives. This new capital can be used to accelerate the development of the company or complete an acquisition or merger with another business. Mezzanine is low cost and has the structural flexibility to make it a very attractive option for a company with strong cash flows.