Mezzanine Loans 101
To finance personal or business projects, it is paramount that you have a sustainable funding source. While having personal savings is crucial, you still need to supplement your efforts with other financing options. Securing a loan is among the financing options that you can utilize. With the availability of mezzanine loans in the market, the chances of achieving your objectives are higher.
Understanding Mezzanine Loans
For individuals looking for a non-traditional form of financing that blends debt and equity, the answer is a mezzanine loan. The borrower gets a subordinated loan that comes with potential equity interests with this type of loan. With mezzanine loans, businesses get significant funding, allowing them to easily implement their projects or make acquisitions. This financing option comes in handy when traditional lenders find it hard to provide the funds needed for business projects.
How Mezzanine Loans Work
A mezzanine loan is a blend of both debt and equity. The difference, however, comes from the terms of the agreement and the arrangement with the lender. The lenders can also get equity interests from the borrower, depending on the agreement they have. If a business or company has a successful track record, the chances of securing a mezzanine loan are higher.
Unlike other traditional loans, mezzanine loans come with higher costs, making them expensive. The interest rates are usually high and in double digits. In some cases, the lender may demand equity exposure to help supplement interest income.
The borrowers, however, have several repayment options depending on the agreement with the lender. There is the use of capitalized interest charges in cases where a borrower wants to reinvest instead of paying the interests.
Pros of Mezzanine Loans
Easy Access to Capital
Unlike other traditional financing options, borrowers can easily access mezzanine loans. As long as you find the right borrower, access to the funds is easier.
Minimize Equity Dilution
The blending of debt and equity is one of the ways borrowers can avoid equity dilution. One can utilize the loans without the fear of equity dilution.
Multiple Repayment Options
Most lenders are strict with the repayment options, making the process harder for many borrowers. This is, however, different when you secure a mezzanine loan as you have multiple repayment options depending on the agreement with the lender.
When you find the right financing options, handling your needs becomes easier. The availability of mezzanine loans creates the best avenue to utilize them. Reach out to TCF Capital for proper guidance today.