When you are looking for a loan for your company, the first logical place to look to is the bank. If the bank cannot provide the funding, you are not out of luck. Another option is to use mezzanine funding as an alternative to bank borrowing.
Mezzanine funding is defined as a loan that is the layer in between senior debt and equity investment. When a company uses mezzanine funding as an alternative to bank borrower, it is putting itself in a strong position. Mezzanine funding is capital that you can use to scale and expand your company, thereby building big value. It is a loan against your business’s equity value and is usually structured in a second position beneath the bank loan on your balance sheet.
A strong reason to look at mezzanine funding as an alternative to bank borrowing is that mezzanine loans are structured flexibly and are cheaper than bringing in an investor. An investor will often want a large stake in your company and want some level of control. Mezzanine lenders generally receive interest income and some small return upside based on the future growth of the company.
Mezzanine funding as an alternative to bank borrowing is preferable for most companies because mezzanine lenders are not looking for long-term stakes in the company. They are a passive form of capital and do not get involved in operations or strategy, unlike an investor.
Mezzanine funding lends itself to growth and acquisition transaction. If a bank cannot provide your company with the type of loan you are looking for, your company should look into mezzanine funding as an alternative to bank borrowing.
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