Benefits of Choosing Mezzanine Financing
Mezzanine financing brings together debt financing and equity financing.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 involves borrowing money from lenders to use it in growing your business.Mostly, money lenders will give out money to business owners in the form of loans, which will be repaid in agreed regular intervals.The resulting sum of all the repayments is the total amount of money borrowed, and some interest amount if there was to be any.Secondly, you can use equity financing to get funds to run your business.It involves selling of the shares you own in your business.Whoever buys the shares automatically owns a portion of your business.This means that the shareholders will suffer the same fate as you as far as the business operations are involved.This will help you in avoiding total losses by sharing them with the other shareholders.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.
Mezzanine financing is thus considered to be the middle way between debt financing and raising funds through equity.This is because, mezzanine financing merges debt financing; which is predictable in nature, with the risks of equity financing- which have potentially high 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.Therefore, that serves as a collateral in case payments are not made.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.As a result of equity shares being given to lenders, the daily decision making processes are not affected in any way.
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