Mezzanine Capital

The financial term Mezzanine Capital refers to unsecured, high-yield (bond that is rated below investment grade at the time of purchase) and subordinated debt, which is debt that would rank after other debts should a company fall into receivership or be closed.

The purpose of Mezzanine Capital is to fund the ‘execution’ if a business idea rather than the ‘invention.’ The process of gaining Mezzanine Capital follows the pattern of introductions, a business plan review, company visits, internal staff reviews and investment committee approval as well as all the documentation that is needed.

Mezzanine Capital is a more expensive financing source for a company than secured debt. This is because it is an increased capital risk as in the event of a default, which is when a debtor has not met it’s legal obligations as set out in the debt contract, Mezzanine Capital becomes less likely to be paid back in full. Mezzanine Capital is a broad financial term as it not only refers to paying interest associated with debt funding but also includes having an equity stake within a company, which makes Mezzanine Capital incorporate both debt and equity funding, which makes it more appealing to businesses.

Compared to other forms of financing mezzanine funding reduces ownership dilution and increases strong reserves by adding needed capital. It can also obtain unsecured debt financing which is based on the cash flow of the business rather than traditional collateral.

Mezzanine Capital could be just what your business is looking for to provide that extra bit of cash just when you need it. Remember, as with any form of business finance, it is important that you thoroughly research into Mezzanine Capital before making any decisions in order to establish whether this form of finance is ideal for your business.

If you are thinking about the use of Mezzanine Capital for your business or you would like more information about using it then get in touch with Angel Start-ups today. As financial experts we will be able to advise you on what will be best for your business.