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Mezzanine financing: what is that?

A relatively new way of financing

Mezzanine we hear more and more. This category of financing your business is relatively new in the Netherlands. The major banks have made a retreat in recent years, leaving more room for alternative financing to be included inthe financing mix.

What's Mezzanine?

Mezzanine loans are generallyloans with special conditions. In contrast to bank financing, no or very limited (personal) securities are stipulated. The interest rate of the loan is generally higher than that of bank financing, because less collateral is stipulated and the risk for the lender is higher. It is therefore possible that the loan is subordinated. This can be done in general and sometimes in relation to a specific financier (the bank). In this way the guarantee capital - which is important for the solvency of the company - can be increased without having to sell or issue shares.

When is it best to use Mezzanine?

As a rule, we see this category a lot with companies that are already heavily financed with bank loans and that have reached their limit. Examples are fast-growing companies or companies that want/need to attract capital but do not want to sell or issue shares. Depending on the sector and the outlook, mezzanine is an option if the ratio Total Debt/Gross Operating Profit is between 3 and 5. Furthermore, the prospects of reducing the debt from future cash flows will have to be good and/or well-founded.

Florijnz could play an important role in attracting mezzanine financing. We have partnerships with several providers of mezzanine and can also - in advance - discuss the feasibility with you. Recently we have - in coronatijd - a mezzanine financing organized for a fast-growing e-commerce company.

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Stef Kolen
Stef KolenCorporate Finance Advisor

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