In recent years, the composition of mezzanine finance providers has grown to include venture capitalists. This group of investors is getting in to this business with an aim of filling the void left by some mainstream lending institutions which are not keen to finance what they term as risky business ventures. Mezzanine finance blends the elements of conventional loans and equity funding. The interest basis point for this type of loan is usually higher than what is charged for normal business loans, however, the lender usually affords the borrower enough time to payback the loan. In most instances, the loan is paid back as a lump sum. In addition to the interest on the loan, the provider will also request for a percentage of the future business profits. The advantage of this feature of mezzanine finance is that though there is some form of equity surrendered, your shares are in no way diluted. You still own your business. This makes this type of funding expensive but the providers make available funding where there would otherwise be none.
Before granting your business mezzanine funding, the provider will take a close look at your business plan. You may be required to include them in board meetings or make changes to say the management team. The provider is, after all, taking on a big risk by lending you the money. Repayment of a loan is not made in periodic installments typical of a bank loan. In this arrangement, the provider will only collect a one-off payment and will do so after a long period of time. This puts less strain on the cashflow of your business. It also gives you ample time to come up with the money to repay such a loan.
If you have a business proposal that most financial institutions find risky, you may find yourself with few options in terms of funding. Your best bet is to visit with mezzanine finance providers and find one who can fund your idea. The arrangement would benefit the both of you. You get funds that would otherwise be difficult to come by, given the risk. On the other hand, the provider gets to benefit from any growth in your company.