Rhapsody on the theme of Mezzanine

How mezzanine loans can orchestrate success

Posted on: March 16th, 2017

mezzanine loansThe musical term rhapsody as defined by Wikipedia is “a one-movement work that is episodic yet integrated, free-flowing in structure, featuring a range of highly contrasted moods, color and tonality (with) an air of spontaneous inspiration and a sense of improvisation (which) make it freer in form than a set of variations.”

Similar to how a rhapsody brings a breath of fresh air to the musical world, mezzanine loans can be a great option for companies, especially small and medium sized businesses, and startups, who have moved beyond the initial stage and who wish to acquire a viable financing option for growth and expansion. .

Unlike opting for a purely debt and/or equity capital structure, mezzanine or junior debt occupies a unique position as a hybrid of debt and equity capital and therefore brings along the advantages of both.

Therefore, for those seeking acquisition financing, growth capital financing, recapitalization financing or refinancing, mezzanine loans can be a great tool used to orchestrate success.

Here’s how companies can leverage mezzanine debt financing to their advantage.

 

  1. Mezzanine financing enables owners to retain control of the company. With this kind of capital structure, owners are unlikely to encounter any interference from their lender, allowing them to continue to run their business to their specifications.
  2. Mezzanine financing offers flexibility to structure coupon, amortization and covenants to accommodate the specific cash flow requirements of the business. This offers a huge plus to businesses.
  3. Mezzanine financing is a form of cheap equity and provides many of the benefits that equity investment does at a fraction of the cost.
  4. Mezzanine lenders are generally long-term investors rather than those looking for a quick kill. This offers small and medium companies and startups with a sense of stability and security.
  5. Mezzanine lenders bring fresh insights and valuable strategic assistance to the business- something that companies can utilize to plan their route to success.
  6. With most mezzanine debt instruments requiring that the borrower pay only interest payments for the first three or four years of the loan, companies can use the extra cash to add to their cash flow in the initial years of growth or merger.
  7. Mezzanine loans allow companies raise its total debt to four to five times its cash flow, as opposed to only two to three times its cash flow in senior secured debt. This provides companies with a sufficient amount of capital.

 

So if you are seeking the right kind of debt financing and wondering about your options, a mezzanine loan may be just the right choice to orchestra your company to success.