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Benefits of Choosing Mezzanine Financing
This type of financing brings together equity and debt financing methods.In other cases, it eliminates the boundary between debt and equity financing.Mezzanine financing may have several complexities and risks, but it can be an alternative source of capital.Debt financing involves borrowing money from lenders to use it in growing your business.Mostly, money lenders will give out money to business owners in the form of loans, which will be repaid in agreed regular intervals.The regular repayments when summed up will include the initial loaned amount, and any interest depending on their terms.Equity financing is the second way of obtaining funds to grow your business.This type of financing involves obtaining funds from selling business shares, or giving out the company’s shares to money lenders, in order for them to serve as a collateral for the loan.Anyone who buys or assumes shares through unpaid loans, will have an automatic ownership of the business.This means that the shareholders will suffer the same fate as you as far as the business operations are involved.You will be benefit because you will not suffer from business losses alone.Due to this, equity financing is preferred by many foreign and local investors, including several other capitalists.It has a very high risk, but has more benefits compared to debt finances.
Mezzanine financing is a linkage between fundraising for your business through debt financing, and through equity financing.This is due to the fact that, mezzanine financing combines equity financing risks- which have a potential of higher returns, with debt financing whose aspects are mostly predictable.There are several mezzanine financing arrangements available and each of them has a unique package, which is different from the rest.In most cases, the common arrangement is the ability of loans converting to shares in the business, once the agreed period elapses.If the borrower is unable to make repayments on the agreed time, this arrangement will allow the lender to assume that business’ equity shares.Therefore, that serves as a collateral in case payments are not made.Also, this service of financing allows borrowers to obtain greater capital to run their businesses.This is due to the assurance lenders have that they can be able to fully recover their money through equity shares.
Small and medium business will get more financing to run properly courtesy of mezzanine financing.The business will still be able to control a majority of business operations and decision making, despite the fact that the arrangements usually result into loss of some equity shares to lenders.Even if some equity shares will be given out to the lenders, the business owner is still able to make day-to-day decisions without any interference.

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