Understanding Mezzanine Financing

Mezzanine financing blends equity and debt, with lenders providing subordination loans over traditional ones. When a business needs funding for a significant acquisition or project, creative financing options like mezzanine loans can help to fill that need. Understanding mezzanine financing can be difficult since it differs slightly from traditional loans.

What Is Mezzanine Financing?

This financing level is a capital resource between the less risky senior debt and the more risky equity. Mezzanine financing is a type of junior capital with equity and debt features. Many companies use mezzanine financing to reach funding goals that traditional lenders will not extend. Often, established companies want to preserve their future senior debt capacity or have already maximized their borrowing capacity. Mezzanine financing is the last stop in the capital structure where companies can raise large amounts of liquidity without selling a substantial stake in the business.