Overview
Equity Mezzanine Unsecured Finance
Equity Investment
An investor in a company, typically a Private Equity company, will lend money to a company in return for a minority stake in the business.
Equity investments are often made into companies with strong potential for growth where conventional bank finance is either not available or is unsuitable. An example of the reasons for the unsuitability of conventional funding may be lack of cash flow in the early years of the company, leading it to be unable to service any debt in the early years, but with strong growth potential in later years.
This type of funding is usually looking for an exit route in five to seven years, for example a trade sale of the business, or floatation on one of the markets e.g AIM
Mezzanine Finance
Mezzanine Finance combines the features of traditional bank finance with the risk of an equity investment. Mezzanine finance is usually a fixed term loan which has either an option to purchase some equity in the business at a later date or, more typically, a redemption premium attached to it.
Mezzanine finance is ideal for the business that wants equity finance, with the lack of real security to the lender it normally carries, but does not want to give away any equity for the investment. The business will require strong cash flows to service the debt and will have to accept the concept of a redemption premium at the end of the loan.
Mezzanine finance usually bridges the gap between equity and conventional bank debt and can usually be the difference between the transaction happening or not. It is more expensive than bank debt as it usually has much less in the way of security than bank debt - usually debenture led borrowing, with the debenture subordinated to other lenders.
We have access to funders that can invest up to £3M into a business by combining Equity and Mezzanine finance.
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