Mezzanine financing means translated “mezzanine floor”. This term is used as a generic term for so-called hybrid financing. Hybrid financing is a form of financing that is classified between debt and equity. As part of a mezzanine financing, you bring capital into your company, which is a mixture of debt and equity.

Specific characteristics of mezzanine financing

The Italian word mezzanine tells you that this type of financing is a combination of a first-rate loan secured by real estate and fully liable equity. In return for the higher risk, the mezzanine investor profits not only from the fixed interest rate, but also from the increase in value of your company. This could, for example, be a purchase option for the share capital of the financed company.

Little say: As a mezzanine investor, you have only a small say in operational business. Their right to have a say is usually limited to possibilities of control and the right to information.

Tax deductibility: If you provide mezzanine capital to a company, you will receive compensation. Mezzanine investors benefit from a reduction in income tax or a reduction in corporate income tax by lowering the tax assessment threshold.

Subordination: In the case of an approved mezzanine financing, a subordination is agreed. In the event of insolvency, this means that a mezzanine investor is serviced only after the traditional creditors and before equity investors. Since mezzanine money is liable for corporate losses, it is regarded as the economic equity of your company.

Higher returns: The risk for mezzanine investors is higher than for classical Mezzanine investors therefore demand higher returns.

Repayment obligation: Unlike equity capital, you must repay the funds from mezzanine financing.

Forms of mezzanine financing

In practice, various variants of this form of financing are used. These forms are, among other things, as follows:

[list] [*]Option bonds
[*]Convertible bonds
[*]Profit participation rights and profit participation certificates
[*]silent partnership
[*]Silent partnerships
[*]Profit participation bond
[*]Subordinated loan
[*]Equity bonds
[*]Hybrid bonds
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Depending on the form and structure of a [url]https://www.youtube.com/watch?v=KVgRCvOZZg8[/url [urlMezzanine] financing [/url], funds from this form of financing are allocated to either debt or equity when preparing the balance sheet.

mezzanine finance provider

In Germany, mezzanine financing is provided by the structured finance departments of various major banks specializing in this form of financing, as well as by bank-independent investors for complex financings.

Advantages of mezzanine financing

This form of financing offers the following advantages:

[list] [*]Equity procurement via crowd investing
Procurement of capital for companies, start-ups and start-ups
[*]no credit talks, no credit check
[*]Flexibility in the structuring of conditions
[*]Implementation of financing independent of banks
[*]Investors do not have a say
[*]Freedom of use
[*]Combination with bank financing possible
[*]Independence from banks
[*] No guarantees or securities necessary
[*]Increase in equity ratio
[*]Strengthening of equity capital
[*]better creditworthiness
[list]

Disadvantages of mezzanine financing

[list] [*]no extraordinary and ordinary rights of termination in the case of deteriorating economic situation
[*]Profits and capital gains of the company must be transferred to mezzanine investors
[*] higher costs compared to borrowed capital (bank loans, etc.)
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The importance of mezzanine finance

As banks become increasingly cautious when granting loans, this form of financing is becoming increasingly important, especially for medium-sized companies. Mezzanine financing is ideally combined with a lower-interest bank loan. With mezzanine financing, for example, you can increase the economic equity of your company to such an extent that banks can grant you additional corporate loans. This form of financing is particularly important in the area of leveraged buyouts. In this case, mezzanine capital is an important part of the money structure, as investors allow you, as a clever entrepreneur, to keep the sum of equity in the company as low as possible.