If you are looking for a non-traditional form of financing that combines debt with equity, mostly for lenders, then you have it with mezzanine loans. Compared to other debts in the case where a business fails, this type of loan has a lower priority. Mezzanine loans blend your debts with equity and receive equity interests as well. These loans fill the gap where lenders are unwilling to provide all the funding you require to fund a project or acquisition.
Understanding Mezzanine Loans
Mezzanine loans blend debt and equity. Mezzanine financing can provide equity interests to lenders and determine how the events unfold, basing on the agreement terms. There are many options for borrowers, but it depends on the agreement terms with the lenders. Have an initial consultation with the lender to understand your options before deciding on the application.
Interest and Repayment
Unlike other forms of loans, mezzanine financing comes with higher borrowing costs. The interests are usually in double digits. The lenders can sometimes demand equity exposure for interest income. The repayment options vary and depend on the agreement you have with the lender. Initial consultation with the lender will help you understand the options and where best to place yourself.
Pros of Mezzanine Loans
You Minimize Equity Dilution
You avoid trading a substantial amount of equity with can lead to dilution when you consider this type of loan.
There is the deduction of interest payment to the business, which helps reduce financial obligations. The lower the financial obligations, the easier it is to lower the cost of operation.
Access to Capital
You can get the money you need to run, purchase or expand a business if you consider mezzanine financing. With the right capital, seeing your business growth becomes possible.
Multiple Repayment Options
Unlike other forms of loans, you have options for repayment with mezzanine loans. You can pay with cash or provide equity to the lender. You can also add the repayment to the loan’s balance making it easier to settle it.
With the many business financing options available in the market, it can be overwhelming for a borrower. You need guidance and effective direction to meet your goals. Get in touch with Magis Funding and get the necessary guidance that will help finance your business.