News For This Month: Financing

Benefits of Choosing Mezzanine Financing
This is a type of financing which is sandwiched between the main financing types which are debt and equity.In other cases, it eliminates the boundary between debt and equity financing.Mezzanine financing may have several complexities and risks, but it can be an alternative source of capital.Debt financing basically involves borrowing money for some reasons, mostly in form 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.This type of financing involves obtaining funds from selling business shares, or giving out the company’s shares to money lenders, in order for them to serve as a collateral for the loan.Whenever a person purchases this company’s shares, he/she automatically becomes part of the business’ ownership.This means that, they will make profits and losses the same way you do.You will be sharing costs, expenditures and profits.Therefore, this type of investment is preferred by private investors, and other capitalists, as a future strategy.Equity financing is highly risky, but it has more advantages to your business compared to finances from debts.
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.The most common arrangement is the conversion of loans to that business’ equity shares whenever the repayment period is over, and no repayments have been made.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 due to the assurance lenders have that they can be able to fully recover their money through equity shares.
Small and medium business will get more financing to run properly courtesy of mezzanine financing.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.Even if some equity shares will be given out to the lenders, the business owner is still able to make day-to-day decisions without any interference.