Mezzanine financing is a hybrid of debt and equity financing that gives the lender the right to convert the debt to an equity interest in the company in case of default. It is a capital resource that sits between less risky senior debt and higher risk equity that has both debt and equity features. Mezzanine financing is a way for companies to raise funds for specific projects or to aid with an acquisition through a hybrid of debt and equity financing. It is a business loan that offers repayment terms adapted to a company’s cash flows. Mezzanine financing is usually unsecured and subordinated to a company’s senior debt, which means that it is only repaid after all senior obligations have been satisfied. It is a form of junior capital that sits between senior debt financing and equity, and is a means by which companies can access capital beyond what theyre otherwise able to achieve on a senior basis.

Some key features of mezzanine financing include:

• Flexible repayment terms: Mezzanine financing provides flexible repayment terms and enables the borrower to finance unsecured intangible assets.

• High risk and high returns: Mezzanine financing is one of the highest-risk forms of debt, but it also offers some of the highest returns to investors in debt when compared to other debt types, as it often receives rates between 12% and 20% per year, and sometimes as high as 30% .

• Subordinated debt: Mezzanine debt is subordinated debt that represents a claim on a companys assets which is senior only to equity.

• Used in conjunction with other securities: In leveraged buyouts, mezzanine capital is used in conjunction with other securities to fund the purchase price of the company being acquired.

• Patient capital: Mezzanine is patient capital that enables companies to pursue opportunities from a long-term strategic approach, which may not have seemed feasible otherwise.

Mezzanine financing can be used for a variety of purposes, such as increasing working capital, funding an acquisition, or financing the transfer of a business to family members or the management team. To receive mezzanine financing, companies must typically have an established reputation, solid product offering, history of profitability, and realistic growth plans.