What is Mezzanine Financing?

Critically-acclaimed, bestselling business author Kim Lavine

Critically-acclaimed, bestselling business author Kim Lavine

by Kim Lavine

When you're bank won't give you a loan, you may be eligible for Mezzanine Financing, which is not a loan. Here's what you need to know.

  • Mezzanine financing is not a loan but second-stage investment by individuals, usually secured by equity-based options like warrants, which can be converted to stock.
  • Mezzanine financing is a debt only in the event of a company’s bankruptcy, when the investors take priority over original owners in the repayment of debt.
  • Typically a business only pays annual interest on money loaned to it through mezzanine financing until warrants are converted into stock.
  • In bigger deals, mezzanine financing can be any late-stage investment by VC or Angels somewhere between start up and going public.
  • Banks do not provide Mezzanine Financing.