Finding Similarities Between Debt and Life
Benefits of Choosing Mezzanine Financing
This is a type of financing which is sandwiched between the main financing types which are debt and equity.It draws a very thin line between equity financing and debt financing.However risky and complicated mezzanine financing may seem to be, it can be an alternative financial source.Debt financing is a form of acquiring business funds in terms of loans.Mostly, money lenders will give out money to business owners in the form of loans, which will be repaid in agreed regular intervals.The regular repayments when summed up will include the initial loaned amount, and any interest depending on their terms.Equity is another way of getting some finances for your business.It involves selling, or giving out shares to your lenders in the event that you are unable to repay the loans.Whoever buys the shares automatically owns a portion of your business.This implies that, all the shareholders in your business will benefit from the profits just like you, and also suffer from any losses equally.You will be benefit because you will not suffer from business losses alone.As a result of this, most capitalists and private developers prefer equity financing to debt and other financing types.It has a very high risk, but has more benefits compared to debt finances.
This product is, therefore, considered the linkage between raising funds for the business through equity financing, and debt financing.Mezzanine financing combines the two aspects of financing, i.e. the predictable debt financing with the risk of equity financing, which have a great potential of providing higher returns.All the mezzanine financial arrangements available have some uniqueness which differentiates them from each other, and avoid any resemblance with each other.In most cases, the common arrangement is the ability of loans converting to shares in the business, once the agreed period elapses.If the borrower is unable to make repayments on the agreed time, this arrangement will allow the lender to assume that business’ equity shares.In case, the business owner fails to repay the loan at the agreed time, the shares will serve as a collateral.This type of business financing also allows business owners to obtain funds which they can use to run their businesses.This is because the lender is assured that he will recover all the amount loaned out.
Mezzanine financing is usually important because, it provides small and medium business owners with capital, which they can use to grow their businesses.The arrangements may result into business owners giving out some of their equity shares to the lenders, but that doesn’t deny the owner the right to control the majority of business operations.Therefore, the daily decision-making process is not interfered with.