Mezzanine Financing

What You Need to Know About Mezzanine Financing

A mezzanine loan is like a mortgage only that business stocks secure it. Since mezzanine loans aren’t secured by really properties, lenders advance them at higher rates and on short terms. If you are looking for a cost-effective loan, consider seeking help from ABG International Inc.

Mezzanine Financing Definition

A mezzanine loan is a mixture of debt and equity financing that entrepreneurs use to fund their business needs.

How Mezzanine Financing Works

A mezzanine loan is applicable when you have used up your asset-based loan or regular loan. With this loan, you will get capital quickly without having to use collateral.

As a business owner, you may need a mezzanine loan to bridge a gap between the cash you have and the debt you qualify for. For instance, a bank may require you to contribute 20% of the loan amount as one of the conditions to approving your loan. If you can’t raise the 20% contribution, you will have to borrow a mezzanine loan to bridge the gap.

About Mezzanine Loan Financing Rates

Mezzanine loan financing rates vary from lender to lender. The majority of lenders offer their mezzanine loans between 12-20%. Note that this rate is higher than that charged on traditional types of debt finance.

What are Mezzanine Financing Benefits?

There is a wide range of mezzanine loan financing benefits, as explained below.

  • Easy to procure and flexible
    Applying for a mezzanine loan is a straight forward thing. Due to the flexibility of a mezzanine loan, repayment is based on a business’ cash flows.
  • No security requirement
    With a mezzanine loan, you don’t have to worry about collateral or personal guarantees.
  • Company control
    Unlike debt finance, the lender will not interfere with your business operation in case of default or delays in loan repayment.
  • Ideal for business expansion

Mezzanine loans are appropriate for businesses that are past the start-up stage but don’t have the capital to finance their growth. Companies with strong cash flows may also apply for mezzanine loans to expand their businesses.

Final Thoughts

A mezzanine loan is meant to bridge the gap between the cash you have and the credit you qualify for. Before you apply for a mezzanine loan, please consult a financial expert, such as ABG International Inc, for advice.