For most companies, mezzanine debt financing is a good way to generate some additional capital to help the company evolve. When you begin speaking to lenders about this type of financing, they will want to hear about your overall plan for company growth, since this is tied to the lender getting its money back. Before you begin, ask about the interest rate that your lender will charge. In most cases, you can expect an interest rate of between 20 and 30 percent. The lender might also want additional funds at the end of the agreement, depending on how the deal is structured. Make sure that you find a deal that works well for your company before agreeing to anything.
Perhaps the main reason to consider mezzanine debt financing is that you do not have to worry about losing interests in your company. Mezzanine lenders have no desire to receive permanent stakes in your company, since they are more worried about receiving cash from you. As a result, this is a great way to borrow money without having to worry about ulterior motives from the lender. In many cases, a lender will approach you about financing because that lender wants to control part of your company. That is one reason why debt and equity loans do not work for everyone, as they can lead to a third party owning part of your business.
A reason why mezzanine debt financing works well for the lender is because of the cash involved. You will pay higher interest rate because the lender is taking on added risk. You do not provide anything as direct collateral with this type of loan, although you should know that the lender can take shares of your company if you default on the loan. If this occurs, you can purchase these shares back from the lender at a predetermined cost, since the lender does not want to keep these shares anyway.
In the end, mezzanine debt financing works out well for everyone because it provides lenders and borrows alike with exactly what they need. If you want some additional capital to stimulate growth and expand your company, this provides it. You do not have to make monthly payments with these loans, as the lender simply wants its money back, plus 20 to 30 percent, at the end of the term. The borrower only has to worry about growing the company to its desired level. The borrower is also provided with the cash needed to accomplish this feat. While it is more expensive to grow your company with mezzanine debt financing, it is a good way to generate additional capital in a hurry.