Why Businesses Use Mezzanine Financing Over Bank Loans
If you own a small business, you know how difficult it can be sometimes to get the financing you need to expand your business or move forth with your vision. Although you may have considered several kinds of options such as SBA loans, credit cards, crowd funding or bank loans, one of your best options may be mezzanine financing. If you are not familiar with this kind of financing, it can be advantageous for business owners who are already doing well with their current business model.
The way mezzanine works, a lender provides financing to a business in exchange for the rights to equity interest or even ownership if the borrower does not pay back the loan completely or in a timely manner. This kind of financing also has relatively high interest rates but is oftentimes provided to the borrower rather quickly. When a business owner is looking for this kind of financing, they are anticipating that they will be able to repay the loan and utilize the newfound capital without too much interference. Although this kind of loan may not be attractive to everyone, there are several advantages to mezzanine financing if used in the right situations.
If you are interested in gaining some assistance not only with the financing of your business but with your growth strategy, mezzanine lenders can probably provide appreciated assistance. Since a mezzanine investor is usually someone interested long-term, they will be a valuable asset in learning about your company’s growth potential. Even though these investors will certainly be willing to help, it is not likely that mezzanine lenders will interfere with an owner’s control or direction of their company, as long as the company is seeing growth.
For those that have already invested in your business, mezzanine financing has a positive effect on the value of stock for those that are already shareholders. However, mezzanine equity will overall weaken the value of the stock. The most important thing to remember about mezzanine is that it works best for those looking to expand particular areas of their business or new acquisitions and are looking for immediate capital to do such a thing.
If you require financing for your business, you do have several options to choose from. However, mezzanine may be a better fit for you than you realized. Although financing such as bank loans may seem like the perfect ideas, there are often lengthy applications and long wait times to receive financing. If you’re looking to receive capital quickly for your profitable business, mezzanine financing might be perfect for you.