A Business Encyclopedia

Mezzanine Financing

Definition: The Mezzanine Financing is a quick way to raise loans for the expansion of current business operations, from the investors or the financial institution such as a bank, without keeping any collateral security against it. But however, the lender has the right to convert the debt capital to ownership or equity interest in the company, in case the borrower defaults in the payment of the loan.

Mezzanine Financing

Since, the mezzanine financing includes no collateral security and involves minimum due diligence, the risk is high for the lender. Thus, higher interest rate is charged on the amount lent to the borrower.

The mezzanine financing is the least risky among the senior loans taken by the firm because it has a legal written warrant against the security. Also, the company enjoys the flexibility with respect to the payment made to the mezzanine lender.

The advantage of using the mezzanine financing is that strategic assistance from the financial institutions or experts can be acquired in the business operations. And also, the value of the shareholder’s stock increases with the use of mezzanine financing. The mezzanine loan is shown on the asset side of the balance sheet.

The mezzanine financing does suffer from limitations, one of the major disadvantages of this kind of loan is, it is very expensive as compared to the other type of loans. And with the default of payment, the mezzanine lender can dilute the equity in the company. Also, it is a lengthy process as it takes several days to get the loan in hand.

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

profibility ratioadvantages and disadvantages of ethnocentrismrbi neft timingsexamples of explicit costconsumer buying power definitionwhat is meant by repo rate and reverse repo ratestrategic hrm definitionretrench definitionreengineering definitiondivestments definitionexplain retailingwhat is correlational analysismeaning and definition of capital budgetingacid quick ratiosbi kiosk bankdefine elasticity of demand in economicsmoratorium period meansmicro and macro marketing environmentdefine collective barganingfiedler contingencyadministrative management theory by henri fayolimportance of ethnocentrismdefinition of divestituresole proprietorship characteristicsdefine strategic hrmdivests definitionbiased and unbiased errorsdefinition of computerizationuntapped market meaningscaling techniques in research methodologyslope of isoquantdefinition of bureaucracy by max weberanother word for takeovermm approach of dividend policymeasures to control inflationexplain business process reengineeringwhat is authoritarian leadership stylekisan vikas patrascost push inflation causesteleology definitionwhat is the meaning of retained earningsmcclelland theorylikert scale intervalformula of asset turnovermeaning of percolateddefine arbitragewhat is micro environmental factorsproduction function formulawhat does arbitrage mean in financejudgmental sampling techniquefive forces model of portermeaning of autocraticbuying behavior examplesfeatures of monopoly market structurewhat is the meaning of draweeethnocentric organizationoperant conditionleadership grid pptwhat is the meaning of vestibuleprepare cash budgetsubordinates meaningdefine residual claimdefine social loafingexplain retailingautocratic management definitionmeaning of cost push inflationdefinition of fixed cost in economicsa firm in an oligopolistic marketdefine breakevengraph of law of diminishing marginal utilitydefine moratoriumequity carve outsprovident fund of employeelikert's system of managementethnocentrism in international businessthe sales to fixed asset ratio indicatescollective bargaining in india pptprofitability ratios accounting