Published by:
Harvard Business Publishing
Length: 4 pages
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Abstract
A mezzanine financing package may be the right thing for a small business that is having trouble finding long-term capital to finance its growth. Mezzanine loans are flexible. In most cases the lender provides from $500,000 to $5 million in subordinated debt over a five- to seven- year term at an interest rate costing no more, sometimes less, than senior debt. In exchange the borrower gives the investor warrants to purchase a small amount of the company''s common stock--usually 5% to 15%-- at a later stage. For lenders, mezzanine loans provide a higher total rate of return than most conventional loans because of the equity feature. For businesses, they provide affordable long-term debt without diluting the owners'' equity.
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Abstract
A mezzanine financing package may be the right thing for a small business that is having trouble finding long-term capital to finance its growth. Mezzanine loans are flexible. In most cases the lender provides from $500,000 to $5 million in subordinated debt over a five- to seven- year term at an interest rate costing no more, sometimes less, than senior debt. In exchange the borrower gives the investor warrants to purchase a small amount of the company''s common stock--usually 5% to 15%-- at a later stage. For lenders, mezzanine loans provide a higher total rate of return than most conventional loans because of the equity feature. For businesses, they provide affordable long-term debt without diluting the owners'' equity.