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.