Mezzanine financing is becoming one of the top options when a company is looking for financing to transform their business. The growing appeal of mezzanine financing is becoming noticed.
More and more businesses are looking for capital and banks and private equity investors are not able to provide the capital to every company that is looking for financing.
When companies cannot receive loans or investment from a bank or a private equity investor, they begin to look elsewhere for funding. Mezzanine finance is an option that companies turn to and when they have a successful experience with mezzanine financing, other companies begin to notice the growing appeal of mezzanine financing.
Mezzanine loans are a crossover between senior bank loans and equity investment. Mezzanine financing was viewed as an expensive loan with high interest rates; however, they are providing larger loan advances at lower interest rates as a means to stay competitive.
They will advance almost as much as a private equity firm, at a much lower all in cost. Much of the growing appeal of mezzanine financing is due to lack of shareholder dilution. Rather than take shares, mezzanine lenders get an interest payment and an option for additional upside return.
This return structure contributes to the growing appeal of mezzanine financing. Mezzanine financiers are looking toward smaller companies in the middle market and small businesses for funding opportunities. High-yield lenders are generally looking to spend their time and capital with large businesses.
The growing appeal of mezzanine financing is that it is a perfect fit for middle market and lower middle market companies. It provides them financing that fills the growth gap and allows management to stay in control of the company.
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