Most of us know what a second mortgage is, but very few of us have heard of mezzanine financing. If you’ve been hearing this term bandied about lately and would like to know more, keep reading!
What is Mezzanine Financing?
As you have likely already guessed, mezzanine financing has a lot in common with second mortgages. The primary difference is that, while second mortgages are used to help deal with personal financial issues, mezzanine financing is used to help deal with professional financial issues.
In other words, while a second mortgage is a loan that is guaranteed by the equity an individual has accrued via home ownership, mezzanine financing is a loan that is guaranteed by a membership interest in, or stock issued by the company. This is seen as potentially lucrative to lenders because these loans are most often used by companies that need the capital to help them expand.
Why is it Called Mezzanine Financing?
The name comes from the fact that these loans are layered into a company’s financial structure on top of traditional business loans. Get it? It’s like the mezzanine level of theater seating.
How Do You Get Mezzanine Financing?
First, it is important to know that this type of financing is meant to be used only as a last resort. You likely won’t qualify for it until you have exhausted every other traditional loan or asset-assured source of capital. Most of the time, these loans are used to bridge the gap between traditional financing sources available to the business owner and the amount of money they need.
The good news is that, unlike a second mortgage where the equity being built up is used as the only funding guarantee, businesses can put less equity into their mezzanine loans at the beginning and still qualify for financing.
If you want to expand your business and haven’t been able to raise all the capital you need, explore mezzanine financing. It could be exactly what you need to reach your goal!
Contact BT84 Commercial Capital & Business Solutions today to get the mezzanine financing you need.