Securing a business loan for your small company can seem daunting, especially if it’s your first time. You may not have sufficient collateral, but that doesn’t mean you’re out of options. Mezzanine financing is beneficial for small businesses as you don’t have to worry about collateral.
Whether you’re engaged in a buyout, require financing for your business’s growth, or participate in a different type of private equity transaction, mezzanine loans could help you achieve stable returns amid the investment. Here’s the connection between mezzanine financing and small businesses.
How does Mezzanine Financing Work?
Mezzanine loans can turn your business into a form of collateral. You’re required to sign a contract that explicitly mentions that your lender will get an equity stake in your company if you default on your loan.
In simple terms, it means that they’ll own a share of your business that’s equal to the outstanding balance of your loan. The lender can consequently sell that share to recollect the debt.
If you have a weak business plan or a poor credit history, traditional lenders are more likely to reject your loan application. But even if you don’t have a good track record, mezzanine financing can help you launch your small business off the ground.
Unlike traditional banks, these lenders don’t perform due diligence with a fine-tooth comb. Not only does this make the approval process much more comfortable, but it can also save time, especially if you require funds on short notice.
Improved Cash Flow
Unlike other funding options, mezzanine financing doesn’t require amortization during the debt term. Hence, you can utilize increased cash flows to invest in working capital or accumulate the cash on the balance sheet and profit from unexpected future opportunities.
The terms, amortization, and coupon structure of mezzanine financing are generally more flexible. Hence, it can be customized according to your business’s monetary situation and other concerns. Since mezzanine investors are focused on equity, they’re usually more cooperative than other lenders in terms of understanding your operating, cash flow, and financial needs.
Your small business can also benefit from mezzanine debt, considering this type of financing is tax-deductible. Additionally, it can be easily managed compared to other debt structures. If you can’t make a scheduled interest payment, the interest may be either partially or wholly deferred.
Looking for professional mezzanine finance providers? With a history of closing on loans from $1MM to over $100 MM, GCP Fund offers asset-based lending, bridge loans, construction and development financing, and much more, with a reputation for reliable loans and quick closings! Get in touch with us today to work with New York’s leading commercial lenders for expert advice!