Closing the funding gap through mezzanine finance is the next step in the European economy. Mezzanine financing, viewed as the layer in between senior debt and equity investment, is being looked at more favorably by SMEs. The process of closing the funding gap through mezzanine finance is becoming a reality in the UK as SMEs look toward mezzanine finance for their funding needs.
The funding gap has long frustrated scale up growth of promising SMEs. These SMEs are either too small to access bank lending and private equity, or they are not willing to pay the high rates and large share grants required. Some SMEs do not have enough collateral to receive bank funding. Closing the funding gap through mezzanine finance is due to a number of unique attributes of mezzanine loans.
They are tax efficient, flexible and long term in nature. The interest expense of mezzanine finance is tax deductible. This helps the borrower lower his cost of capital. Mezzanine loans align the lender and the borrower. The borrower has a long term loan with a committed long term lender.
Mezzanine lenders receive both interest income and long term upside through the growth of the company. Mezzanine finance providers can provide flexible, bespoke structures for growing SMEs that allow them to reinvest their cash flow in the business. Mezzanine debt is a rising star when it comes to financing SMEs and it is looking like SMEs will be closing the funding gap through mezzanine finance.