The Definition of Mezzanine Financing
Mezzanine financing is a tool that companies sometimes use to help support their expansion efforts, typically when they need funding quickly. It is sometimes called subordinated debt or subordinated financing.
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Structure
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Mezzanine financing is a mixture of debt and equity financing. The borrower borrows some of the money it needs and then sells some equity to the lender to raise the rest of the funding, according to Reference for Business.
Borrower Benefit
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Mezzanine financing allows a company to receive financing quickly. The borrower does not typically need to put up as much collateral as with other financing options, and it does not have to navigate a thorough due-diligence process, according to Investopedia.
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Lender Benefit
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The lender in a mezzanine financing transaction receives the option to take an increased ownership or equity interest if the borrower is unable to make its payments. Because of the circumstances of mezzanine financing, lenders can charge high rates and earn strong returns, according to Investopedia.
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