Mezzanine Finance: High level finance without loss of control
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Supporting your plans
- High levels of funding
- Proven businesses
- Avoids loss of control
- Maintains equity
- Interest roll-up
- Repayment by lump sum at end of arrangement
- Any scale of funding
- Designed to support strategic growth
- Funds for any legal purpose
- Suitable for development funding
- Land purchase
- Business purchase
If you want to fund major growth, buyout or acquisition, you may have a major challenge. Mezzanine funding could be the answer.
All the information you need
It can bring you the level of funding you need while reducing costs.
What is Mezzanine Funding?
Borrowing or ‘debt’ solutions are where you borrow to finance your business plans. They are simple to understand and arrange, but they may not be able to provide the level of funding that you need for a major project.
A common alternative is equity funding. This can provide the scale of funding you need for major growth. There’s nothing to repay because, with equity funding, you are basically selling a share in your business. It can mean losing control of your company – it will certainly mean sharing all future profits with your investors. Equity investors make their return from your growth.
Mezzanine Finance can provide a third way to raise the funds you need. It gets its name because it sits in the middle area between debt and equity finance. A lender will provide the funds you need, secured on the future of your business. They will offer a high level of funding, but you will need to repay their debt and interest charges - if you fail to repay, the lender will have the right to take an agreed proportion of equity interest in the company.
A high level of lending
Because of the security provided by the equity option, Mezzanine Lenders can provide very high levels of finance. Mezzanine Finance can, therefore, often be used to fund strategies such as acquisitions and buyouts, where costs and risks can be too high for borrowing solutions.
If the company was to fail completely, Mezzanine Lending is subordinated debt – this means lenders will only be repaid after Venture Capital companies and other senior lenders are paid. This means that the risk for Mezzanine Funding providers is a little higher, and as a result, the interest rate you pay will be higher too.
When is it appropriate?
Mezzanine providers are a useful source of growth finance in circumstances where bank finance is unavailable. It can allow you to retain your ownership of the business, without having it diluted by new equity investors. It can be used to fund:
- Management buyouts
- Expansion plans
- Large-scale property developments where no profit will be seen until completion
How does it work?
There are several types of Mezzanine Loan arrangement. One of the most common is a loan that ‘converts’ to an equity share after a set time. If things go well, the business can pay back the money as if it were a loan. If it can’t, the lender can recover costs through shares in the business that increase in value.
What does it cost?
Every Mezzanine Finance deal is arranged individually, and costs will vary accordingly, but in general, it costs less than conventional borrowing solutions.
Is it right for your business?
Mezzanine Finance can help avoid the loss of control of your business, although you need to be aware that if things don’t go well, your funding partner could retain a share in your business.
It could be better for your cash flow. A loan will require regular, monthly or quarterly repayments, reducing the cash available to the business.
Mezzanine Loans are usually repaid at annual intervals. They can be structured with the bulk of the money repayable towards the end of the life of the agreement. This helps you follow your growth plans with low repayments at the front end of the agreement, with the big repayments when your business has started to grow and make more cash available.
Remember, though, that if you fail to deliver on your growth projections you will still face large repayments towards the end of the term.
Mezzanine providers will take rights on a percentage of the company’s equity. However, this will be a much smaller percentage than would be the case in a conventional Venture Capital or Angel investment.
Management buyouts and reverse acquisitions are often funded by Mezzanine Financing. It can be the most practical way to raise the level of funds required.
Can you arrange Mezzanine Finance?
To attract Mezzanine Financing, your company must demonstrate a track record in your industry. You should have an established reputation and product, a history of profitability and a viable expansion plan for the business.
You will need to show a business plan with details of growth through acquisitions, expansion or the launch of a new product or division.
Most Mezzanine Finance providers operate at the top end of the market. Funding of up to £3million should be considered as the minimum, and £10million may be more common.
Why you need Rangewell to set up Mezzanine Finance
Mezzanine Finance is a very complicated form of lending that must be arranged on a bespoke basis. Getting the approach that is right for your business demands both expertise in the sector, and a knowledge of the available lenders who might consider working with your business.
Our service is personal. We can work with you to discuss your funding options, and if Mezzanine Funding can provide the solution you need, we can work with you to help set up the solution that is right for you.
REAL EXAMPLES OF WHAT WE CAN DO
Help arrange funding for a senior manager to carry out a management buyout of his engineering company employer
Find the most competitive funding for a retail chain to buy a property portfolio
Find finance to allow a chemical company launch a new division
Source funding to allow a property developer to fund a new London development
Set up finance to allow a small games company to acquire a major competitor
Discover our range of finances
Every type of finance for every type of business
Our goal is very simple - to help businesses find the right type of finance as quickly, transparently and painlessly as possible.
Helping you build your profits
Funding designed for successIf the company continues to grow, it’s unlikely that the owners will lose outright control.
Protect your cashflowRepayments can be structured around your growing business, letting you make the big repayments when your business has started to grow.
A solution tailored for your businessMezzanine funding is flexible, offering various repayment schedules and structures to suit your business.
Scaled for serious businessesMezzanine finance providers look at large scale businesses. £3million valuation may be a minimum.
Does not dilute your shareholdingEquity finance may mean losing control of your business. Mezzanine funding can give you the funding you need, without giving away your business.
A sophisticated way to build on growthMezzanine finance is can be a cost-effective way to leverage future profits to maximise your funding.
Download Rangewell’s free and detailed guide to Mezzanine Finance
What is Mezzanine Finance and when is it appropriate for your business?
Why not all providers are equal - finding the one that’s right for you
The risks of Mezzanine Finance - and how to avoid them
How to arrange Mezzanine Finance
Mezzanine debt and equity explained
How does Mezzanine Funding differ from debt financing?
What does it mean - mezzanine financing is a hybrid of funding types?
Do mezzanine lenders include equity investors, senior lenders or private equity firms?
Key terms explained, including leveraged buyouts, interest rates, senior debt, capital structure, equity investment, and senior loan
What interest payments should I expect from mezzanine financing providers?
Is Mezzanine Finance a type of long term funding?
Is Mezzanine Finance appropriate for working capital or real estate/property funding?