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Mezzanine Loans: What You Need to Know

Mezzanine Loans: What You Need to Know

According to one study, only 40% of companies will make a 3% return on assets when they expand their company globally.

If you think you have what it takes to expand your company, you’ll first need some commercial property loans. That’s where mezzanine loans come in!

But what are they? Keep reading to find out!

What is Mezzanine Financing?

Mezzanine loans are equity finance and debt combined. Companies use it to help expand their companies, and most of them don’t use it as financing for a startup. 

If you’ve dealt with debt capital before, this is similar in the aspect that the lending party will adjust the terms of ownership. They could also adjust the equity interest as well if the loan isn’t paid back. 

These loans are normally only for a short period of time, and they don’t require much collateral as well. However, they normally have a lot larger percentage of interest. Most of them can range from 20 to 30%.

If you’re interested in expanding your business, click here to find out more about commercial real estate financing.

How Does it Work?

Since a mezzanine loan is a mixture of equity and debt, you could have the option to gain back an equity interest. This will depend on how the loan payments work and what the terms of your agreements are. 

Mezzanine lenders will normally only work with companies that have a good history of paying back their loans.

What Are the Disadvantages?

When you take out any type of loan, there could be financial consequences. If something doesn’t go how you planned it to be, you could face a lot of debt and trouble. 

That’s because it’s always risky to borrow money when you hope to earn more than that back.

If your borrower decides to default on the loans, you may also have to pay equity interest to them as well. 

What Are the Benefits?

While there are risks associated with it, there are plenty of benefits as well. You will be able to get the money you need in order to make an expansion or purchase for your business. 

It can also be an expense that you can deduct from your taxes. 

You’ll also have all kinds of options to pay it back. Borrowers can pay your interest with cash and then add it to the loan balance. Or you can pay it off with equity instruments. You’ll have to work out with your lender first. 

Learn More About Mezzanine Loans

These are only a few things to know about mezzanine loans, but there is much more to know before you enter into one.

We know that expanding and financing your business can be stressful, but you don’t have to figure it out on your own. We’re here to help you out!

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