Those interested in mezzanine finance in 2012 should probably learn as much as possible about the process before they begin, so that they are not blindsided by how it affects the company. The idea behind this type of financing it that it allows a business to obtain financing, without having to become a publicly traded company or borrow money from a bank. It combines equity financing with debt financing, which provides benefits to both the borrower and the lender. This financing is like debt financing because it does not have to involve losing a stake in the company. At the same time, it is unsecured, just like equity financing, as no collateral is required.
Lenders like mezzanine finance during 2012 because of the extremely high interest rates. If you borrow money in this manner, you should be prepared to pay 20 to 20 percent in interest. In exchange for this amount, however, you will not have a bank holding your assets, but will have a lender holding a warrant for a stake in the company if you default. As long as you make your payments, you will only be responsible for paying the extra 20 to 30 percent at the completion of the loan.
For a developing company, it can be very difficult to gather enough liquidity to expand. That is where mezzanine finance in 2012 comes into play, as it provides a short-term influx of capital, so that the company can grow at its desired rate. Since it does not force the company to go public, it can grow on its own, without giving up any ownership. The lender does not receive any stake in the company unless the loan defaults, which is further reason to give this type of loan a try. If you go for a traditional equity loan, the lender is likely trying to overtake your company and could do so at any time. With mezzanine finance 2011, the lender is more interested in receiving its 20 to 30 percent, rather than any stake in your company.
To receive mezzanine finance in 2012, your company must have a solid history as a profitable company. This is not for companies that are looking for additional money to get started, but rather for established companies that need extra capital to expand. Your lender might also want to see your business plan beforehand, just to see if your company is likely to succeed and pay out on this risk. These loans make sense for some companies because they provide quick injection of funds into an already profitable business to help that organization reach its full potential without selling off any ownership.