Mezzanine Financing: What Does it Entail?
When establishing a business, you are bound to settle on a form of financing. As a sole proprietor, you may opt to use savings or bank loans to finance your business. However, you can turn to mezzanine financing, especially after spotting an opportunity. Before venturing into this financing option, it is crucial to understand the ins and outs of mezzanine financing.
What is Mezzanine Financing?
Mezzanine financing is used to help business owners grow their enterprises after identifying growth opportunities. These funds have a higher interest rate compared with senior bank debt. The rate of interest is less than private equity.
You can make principal payments after a set time while interest payments are done quarterly or on a later date. It is worth noting that an agreement can be reached between your bank and mezzanine provider on payment plans.
Factors to Consider When Settling for Mezzanine Funds
Determining whether mezzanine financing is right for your company or not can be stressful. That said you should evaluate some aspects before making a decision.
For starters, you have to assess the viability of the growth of opportunity. This is crucial given the high-interest rates charged by mezzanine lenders. Therefore, you have to ensure that your business is going to benefit from an injection of more funds.
Secondly, you have to compare and contrast the pricing of various mezzanine providers. This way, you get to get the best deal for your company. For example, you can check SBIC programs found on the U.S Small Business Administration website. Small Business Investor Alliance is another renowned mezzanine lender.
Many companies have benefited from mezzanine providers as they provide them with capital to tap into new opportunities. Finding a suitable mezzanine fund can be overwhelming. If this is the case, feel free to contact Atlas Capital Solutions today for professional services.