8 Uses for Mezzanine Financing
Most companies that opt for mezzanine financing do not intend to use it as permanent capital. Instead, it is solution-based to perform a specific purpose and later be replaced with a traditional type of financing. Some uses of mezzanine financing have been discussed here.
In recapitalization, new capital is raised for restructuring the debt and equity mixture on the balance sheet of a company, especially when an owner wants to maintain control of their business. If some shareholders want to actively remain involved in the business while another group seeks partial or full liquidity, mezzanine financing can be used.
This is where companies are looking for large amounts of capital to support transition in ownership or address a huge growth phase. The purchasing shareholder will therefore use mezzanine financing to maximize their borrowing capacity.
Here, the company’s current management team will use mezzanine financing to buy out current owners such as investors or private equity to gain control of the business.
Companies can use mezzanine financing to get growth capital which helps them achieve their goals, such as constructing a facility or developing a new product.
Mezzanine Financing can also be used to finance acquisitions where a company purchases another business to grow and respond quickly to customers’ needs. This allows companies also to diversify their customer base and access adjacent markets.
Shareholder buyouts are common, especially in family-owned businesses. You will find families that want to increase their ownership stake using mezzanine financing to repurchase any shares that, for one reason or the other, fell off the hands of one of them.
You will find companies using mezzanine financing to replace or pay off existing debt to take advantage of better terms or lower rates. This adds stability to a company’s debt structure and prepares them for seizing opportunities such as shareholder buyouts and acquisitions.
Balance Sheet Restructuring
Mezzanine financing is well suited for balance sheet restructuring due to its patient nature. When added to the balance sheet of a company, it optimizes its debt capital structure. This helps companies fulfill debt requirements for transactions like management buyouts and acquisitions with the luxury of time to recover from those expenses.
Most people prefer mezzanine financing as it is solution-oriented. If your company needs capital for any of the above uses, consider Advanced Commercial Capital LLC to support your financial needs.