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Why is it Called “Mezzanine Financing”? A Brief Guide

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If you’re an entrepreneur, you’ve probably heard the term “mezzanine financing” thrown around a lot. But what does it actually mean? In short, mezzanine financing in Australia is a type of funding that’s structured as debt but can be converted into equity if certain conditions are met.

The term “mezzanine” itself comes from the Italian word for “middle”. In business circles, the “middle” refers to the stage between start-up and IPO. Mezzanine financing is thus a way for companies to raise capital during this middle stage, and that’s where the “mezzanine” in mezzanine finance originates from.

Why consider mezzanine financing as a funding option?

There are several reasons why you might choose to use mezzanine financing for your business. For one, it’s a relatively quick and easy way to raise capital. Because mezzanine financing is structured as debt, there’s no need to give up equity in your company in exchange for funding.

Another reason to consider mezzanine financing is that it can be easier to obtain than other forms of funding, such as venture capital or bank loans. And finally, mezzanine financing can provide additional flexibility when it comes to repayment terms.

What types of mezzanine financing are there?

There are two main types of mezzanine financing: unsecured and secured. Unsecured mezzanine financing is typically given in the form of a loan or line of credit. The lender does not have any claim on the borrower’s assets, so this type of financing is considered less risky.

Secured mezzanine financing, on the other hand, is collateralised by the borrower’s assets. This means that if the borrower defaults on the loan, the lender can seize and sell those assets in order to recoup their losses. Because secured mezzanine financing is more risky for lenders, it typically comes with a higher interest rate than unsecured financing.

Is mezzanine financing a feasible avenue for your specific project?

Mezzanine financing can be a great way to raise capital for your business without giving up equity or taking on too much risk. If you’re looking for a flexible form of funding that can be obtained relatively quickly and easily, mezzanine finance may be the right choice for you. Just be sure to do your research first and speak to a qualified and experienced broker who can advise you on next steps. Good luck!


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Source: Market Business News