When considering the various mezzanine finance providers in your city, you must learn about when this type of loan is appropriate and what the lender expects from you. These loans are more expensive than traditional bank loans, although lenders are more likely to provide you with mezzanine financing because it provides them with a greater reward. These loans fall somewhere in between a bank loan and equity funding, so it does come with some complicated terms. Your provider gives you money to put into your business, but also receives a predetermined amount of money from the growth of your business. This takes some of the risk out of the equation for the lender, while providing a much greater upside.
Since a mezzanine is a higher risk, you might wonder why mezzanine finance providers would even have interest in this equation. The simple answer is that they stand to make a lot more money from you than with a traditional loan. They will have to wait longer for this money, but it is worth it once the money arrives.
You might also wonder why you would want to get involved with this type of loan, since it appears as though you are giving up a lot to get this money. The main reason why this loan works for you is that the equity is temporary. If you get an equity loan, it means that the lender owns part of your business until you purchase it back. While this can happen if you default on your payments in a mezzanine loan, it is not necessary. The warrant in a mezzanine loan, however, states that you must provide a certain return for the lender when you exit. You do not, however, have to give the lender any of the company up front to receive this capital.
Another reason why you should look into mezzanine finance providers is that you do not have to make monthly payments. You can simply give the lender its money back at the end of the agreement, without having to remove funds from your growing business along the way. This prevents you from putting a strain on your company’s capital as you attempt to grow. A bank wants its money back right away, which is one thing that gives mezzanine finance providers a definite advantage.
When looking for mezzanine finance providers, look for a lender looking for a yield of between 3 and 4 percent, in addition to performance-based bonuses. Banks loans can be found for about 1 percent yield, but they do not have these other benefits. Research both types of loans and come to a conclusion based on what works the best for you.