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If you’re a business owner looking for alternatives to traditional lending, “Take 2” suggestions from DE Partner Andrew Mello: mezzanine and bridge financing.
Transcript:
As businesses feel the squeeze of rising interest rates, it’s becoming harder to secure capital from traditional lenders for growth initiatives. Even so, money’s still out there; you just need to know where to look. That’s where mezzanine and bridge financing enter the picture, as these vehicles provide flexibility, expedited funding, and risk mitigation strategies.
So how is mezzanine lending different than traditional lending? The biggest difference is that mezzanine lenders often take collateral in the form of equity participation instead of holding property. Without a stable collateral asset, mezz lenders, as they’re called, charge high interest rates but have greater incentive to lend because of the potential of sharing in the company’s upside if it performs well. With the flexible terms, higher loan-to-value ratios, and longer repayment periods that mezzanine financing can provide, it’s worth a look for businesses.
Meanwhile, bridge lending is just like it sounds: provides quick and temporary access to cash to buy some time before long-term financing can become available. While businesses will also pay higher interest rates for these loans, it can be an invaluable tool to pay your employees before a round of equity financing.
You can read more about these lending vehicles by checking out the DE Insight that I wrote with my colleague Andrew Howayeck. Expect to be hearing these terms more and more often over the next 12 to 18 months, and know they may be what your business needs to succeed.
