Bridging the capital gap

Mezzanine lenders have plenty of cash on hand for growing companies. The capital they offer - a hybrid of debt and equity - is especially useful if a company's bank borrowings have exceeded its bank's comfort zone, but the company has sufficient cash flow to service more debt. Despite its...

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Bibliographic Details
Published in:Small business report (Monterey, Calif.) Calif.), 1993-12, Vol.18 (12), p.18
Main Authors: Levine, Lawrence M, Gezon, Dave
Format: Article
Language:English
Subjects:
Borrowing
Capital structure
Cash flow
Collateral
Corporate finance
Equity
Finance
Finance companies
Interest rates
Investments
Lending institutions
Loans
Mezzanine financing
Small business
Subordination agreements
Tradeoffs
Warrants
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Summary:Mezzanine lenders have plenty of cash on hand for growing companies. The capital they offer - a hybrid of debt and equity - is especially useful if a company's bank borrowings have exceeded its bank's comfort zone, but the company has sufficient cash flow to service more debt. Despite its recent proliferation, mezzanine debt is a frequently misunderstood term in corporate finance. In part, that is because subordinated debt comes in all shapes and sizes. The structure of the deal is limited only by the creativity of the people involved. Nonetheless, these points are clear: 1. It is an unsecured loan. 2. The payback on the loan typically starts in the 3rd to 5th year, with final payment due in the seventh to 9th year. 3. Borrowers must pay interest and use stock warrants or another mechanism to give the lender a stake in the company's upside potential.
ISSN:0164-5382