For example: Mezzanine financing options can include silent partnerships, profit participation certificates and subordinated loans. Alongside equity, the claims of mezzanine financing providers are subordinate to those of other lenders in the event of insolvency. The company does not need to pledge any collateral to the mezzanine financing partner either. On the other hand, the mezzanine investor has no say in decisions and no profit share, as is typical with equity shareholders. This higher risk means that the cost of mezzanine financing is higher than that of debt, but it is still significantly lower than the rate of returns which traditional equity providers will want to see.

In growth financing, for example, a company’s credit history and cash flow often place tight limits on the loan amount. However, in periods of significant growth, companies often need higher amounts for investments or pre-financing. Not every entrepreneur wants to sell shares at times like this, so mezzanine financing provides a good alternative.

In times of restructuring or consolidation, financing requirements may be substantial, perhaps in order to fund a sustainable turnaround, which in turn may call for investment in more efficient production methods. Here, again, traditional lenders are generally very cautious. Mezzanine capital increases the company’s stability and ability to ride out crises with so-called quasi-equity.

This is why mezzanine financing is particularly interesting in situations where the additional equity requirement is clearly for a limited period only, for example because an entrepreneurial project needs to be realized quickly. A company succession is a typical example. Mezzanine financing has an average term of five to eight years, so the company still has access to the additional capital for a sufficiently long time to enable it to realize larger, longer-term plans.

This has clear benefits: As a rule, this improves the conditions upon which the company can raise debt significantly. Mezzanine financing can even be a basis for a better rating, which often gives the company access to further outside funding. This gives additional financial headroom, beyond the mezzanine financing total. It is not uncommon for companies to use mezzanine capital again and again. For example, they might use it to finance the development of a completely new range of products, or to show a major customer that they are on a strong financial footing.

Furthermore, the repayment schedule needs to be structured to take account of when the company is in a position to service the corresponding maturities. If this is not possible, then it is worth considering raising equity by means of either a majority or a minority shareholding, as this would not involve interest payments or fixed terms for repayment.

We can tailor our mezzanine requirements exactly to your specific investment needs – for example, with regards to draw down, maturity and repayment. And as an experienced equity investor, we can also combine mezzanine financing with traditional types of direct investment. This gives you the financial flexibility you need for your plans.