Mezzanine Financing What is Mezzanine Financing Formula amp Examples

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In this video, we discuss about what is mezzanine financing, And also the structure, disadvantages and advantages of Mezzanine Financing. • What is Mezzanine Financing? • ------------------------------------------------ • Mezzanine financing is nothing but a kind of financing that has both features of debt and equity financing that provides lenders the right to convert its loan into equity in case of a default (only after the private equity companies and other senior debts are paid off) • Mezzanine Financing Characteristics • ----------------------------------------------------------- • 1. Mezzanine Financing is for companies who have moved beyond start-ups. • 2. Mezzanine Financing is a pretty flexible form of financing. • 3. Mezzanine Funds are pretty risky. • 4. As Mezzanine Funds are unsecured, lenders restrict the borrowers in certain cases • Mezzanine Financing Example • --------------------------------------------------- • Mrs Marry has an ice-cream parlour. And she wants to expand her business, but she doesn't wants to go for the conventional equity financing. Rather she decides for mezzanine financing. • Mrs Marry goes to mezzanine financiers and asks for mezzanine loans. • But the lenders mention that they need options or warrants for this loans. Since the loans are unsecured, Mrs Marry has to agree to the terms set by the lenders. • So Mrs Marry takes $200,000 by showing that she has a cash flow of $50,000 every year. She takes the loan and unfortunately defaults at the time of payment since her Beauty Parlour couldn’t generate enough cash flow. • The mezzanine lenders took a portion of his beauty parlour and sold off to get their money back. • Some Advantages of Mezzanine Financing • -------------------------------------------------------------------- • 1. Can get loan easily from mezzanine financing • 2. The structure of mezzanine financing is flexible. • 3. Interest on the mezzanine financing is tax-deductible • Some Disadvantages of Mezzanine Financing • ------------------------------------------------------------------------- • 1.The mezzanine lenders incorporate restrictive conditions on the borrowers. • 2. The borrowers need to pay quite a high interest rate and if you have not been earning half of what you intend to borrow. • If you want to know more about Mezzanine Financing here: https://www.wallstreetmojo.com/Mezzan...

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