Understanding Mezzanine Financing

Mezzanine financing is a hybrid type of financing that combines aspects of equity and debt. It is also known as subordinated debt or junior debt. It is often used by for-profit companies looking to raise capital quickly and unable or unwilling to borrow large sums.

Mezzanine financing works by offering investors the opportunity to acquire shares in the company, giving them voting rights and a share in profits, and in return giving them a priority right of repayment if the capital is repaid.

Investors in mezzanine finance transactions often receive dividends and special rights, including the possibility of receiving sales royalties, liquidation payments and call options.

Mezzanine finance transactions are popular because they can offer higher returns than senior debt and lower benefits than equity, making them an attractive source of financing for companies of all sizes.