While equity financing and debt financing as sources of capital both have their advantages, there are situations where more adequate options will be needed. Fortunately there are instruments such as mezzanine financing that combines features from both general methods. This is one of the many funding services that we can offer you to ensure there are no gaps in your capital requirements.
Components Of Mezzanine Financing
A mezzanine loan is a subordinated debt that may also have an equity component. This means that it is often unsecured and has low priority and status in the hierarchy of creditors. Since it actually carries more risk, there is a naturally higher expected rate of return. This can come from any combination of:
- Cash interest - based on the balance of the mezzanine loan, it can be arranged at a fixed or variable rate and payment is made periodically
- Payable In Kind (PIK) interest - follows a term but instead of a cash payment the interest is added to the principal
- Equity stake – a component that gives the lender rights to convert the loan into partial ownership, which in this sense makes mezzanine financing appear as equity on the company’s balance sheets
Common Uses Of Mezzanine Financing
This type of financing is often used to supplement the necessary funding for acquisitions. A company’s capital structure is made up of equity and less expensive senior loans. To reinforce the two sources and successfully complete a leveraged buyout, for example, a business can count on mezzanine financing.
In the arena of real estate investment, this method can be used to finance development projects. Like in acquisitions, it is also considered as a supplementary measure for other fund sources, such as primary mortgage and equity. Company stocks, rather than the property itself, are usually what serve as collateral.
With over $500 million in capital and capital commitments and access to virtually unlimited capital, we can create a financial bridge across any challenges in your financing needs. As your financial partner, you also gain our extensive experience and expertise in the areas of commercial lending and real estate financing.