Mezzanine Financing

Why Mezzanine Finance is a Great Option for  Business Funds

Growth is the fuel of business. As a business or property owner, you’re naturally keen to seize opportunities to expand.

For this, you need funds. Sometimes, the loans you have already taken from banks and other lenders do not cover such expansion costs. At such times, you could look at mezzanine financing. It’s a great option between debt and equity financing.

In this way, mezzanine financing is useful for filling in the gaps. It is true that the interest on funds in this case tend to be on the higher side. However, the upside is that you don’t have to abandon any project for lack of money. Whether it is in real-estate or any other field.

Loans in this method of financing can be secured or unsecured. Those whom you borrow from have a claim that is ahead of equity holders, and behind lenders such as banks. That’s why it’s referred to as mezzanine: it’s in between.

That’s why mezzanine finance is free from conventional and traditional restraints of commercial finance. Many developers in construction and real estate have been quick to see its possibilities. Mezzanine finance has been able to enhance their borrowing potential.

Thus, it can be an attractive option for first-time commercial real estate property businesses, as well as for investors who need to expand their property but do not have enough funds.

Typically, such mezzanine loans are given for the intermediate term. For example, from three to five years. Shorter and longer periods are also possible, depending on the specific nature of the loan and the need of the business.

At Hubbe, we have expertise and experience in just this form of financing. Contact us to know more about our consulting, broking and structuring services, and you’ll discover how mezzanine financing can be your milestone to success.

Mezzanine financing further explained

As we’ve pointed out, mezzanine financing is a type of debt that fills the funding gap between senior debt and equity.

As a reminder, we should explain exactly what senior debt is. Simply put, it is the money that is borrowed by a company that it must first repay in case it is going out of business. Thus, lenders such as bondholders or banks are repaid first.

Lenders of mezzanine finance come next in the repayment schedule, followed by equity shareholders. That’s why this form of finance is more expensive than senior debt, but less than equity.

Thus, by supplementing borrowing with mezzanine finance, property developers and other businesses can find a convenient way to fund projects.

Mezzanine financing has been referred to as both broad and dynamic. It is broad because of its range of objectives and strategies. And it is dynamic in terms of the range of real estate activities that it can fund at different points in time.

For example, when it comes to refurbishing or renewing older properties, banks may not provide funding, and it may not be possible to raise further equity. This can be a perfect opportunity for mezzanine financing to step in.

Because real estate in particular has many such examples of renovating and  replenishing properties, mezzanine financing has proved to be very useful. It has benefits for both buyers and lenders. And it is often necessary to make a deal viable for all parties concerned.

Mezzanine financing can thus be the difference between a business venture that moves forward, and one that simply halts.

Some benefits of mezzanine financing

From affordability to a rate of return, mezzanine financing offers several advantages. Here are some of them:

  • When compared with equity, it is less expensive.
  • With this form of financing, it’s easier for the developer to find out how much equity should be put into development.
  • Development can also begin more quickly, as mezzanine financing can be raised sooner than equity.
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Mezzanine Financing Rates: Your questions answered

How can I know about the rates for a mezzanine financing?

Simply call Hubbe today and you can easily begin the procedure of getting your development started with mezzanine financing.

What factors influence mezzanine finance interest rates?

As with other finance options, there are many factors that affect rates. Because mezzanine financing is a hybrid of debt and equity, the rates reflect the ebb and flow of pricing and performance in those two investment sectors.

With mezzanine financing, the interest rate factors can include:

  • Assessment of risk. This is important, as mezzanine funding represents a junior obligation in the company’s capital structure.
  • The total investment and the equity/debt cost.
  • The equity/debt percentage. In case of default, this represents the percentage of claim to a company’s assets.
  • The specific nature of the project or the need for which the loan is being taken.

The advantages of brokers in mezzanine loans

What does a mezzanine financing broker do?

A mezzanine financing broker has expertise in conducting, negotiating and then settling the terms of mezzanine capital structuring. He or she is an essential ally who is by your side when it comes to negotiating with the needs of mezzanine finance lenders.

What advantages can a mezzanine financing broker bring to the table?

Skilled mezzanine financing brokers such as the ones in Hubbe, can deliver several benefits.

Some of these are:

  • They have relationships with some of Australia’s leading private mezzanine finance lenders. This means they’re in an advantageous position when it comes to acting on your behalf for setting up a mezzanine capital structure.
  • These relationships also mean that they can streamline and simplify the process, allowing you to meet your timelines.
  • When you delegate mezzanine financing tasks to a broker, you get more time to focus on other important tasks instead of being bogged down.
  • You can be sure that the skills and capabilities of Hubbe’s brokers will be a trump card in securing the best terms for you.

What else do I need to know?

You should also keep in mind that mezzanine funding is highly negotiated and customised to fit specific transactions. This gives you much-needed flexibility.

Having an experienced intermediary such as a broker to guide you is critical to securing optimal terms. This also helps to protect your ongoing cash flow and profits when it come to sale or refinance.

This is how Hubbe’s brokers can add immense value with their knowledge and skills. With useful market perspective and practical experience.

The advantages of private mezzanine financing

As it has a unique and specialised nature, mezzanine finance is seen as something that private investors specialise in.

With private financing, the process often happens faster. There is more flexibility and space for negotiation. These are important components of any mezzanine funding deal because they can be highly individual and personalised in nature.

As a property developer or businessman looking for extra capital, these should be key considerations. They allow you to not only raise funds but also increase your leverage and reduce out-of-pocket equity commitments.

How mezzanine finance works for property

What is a mezzanine financing real estate loan?

As we’ve pointed out, the key aspect of a mezzanine financing loan is that it is a bridge financing option for property investment and development. It is a hybrid of debt and equity financing.

In case of default, the lender typically has the right to convert to an equity interest in the business venture or the company. This happens after venture capital companies and other lenders such as banks are paid.

For real estate developers looking to expand projects, mezzanine finance is often the best way to procure funds.

What benefits can a mezzanine finance real estate loan provide?

In case a senior funder is unable to increase a loan limit, mezzanine funding can top up shortfalls. The benefits include:

  • Mezzanine finance can increase your return on equity.
  • It can free up capital so you can go ahead and consider other sites for your future projects.
  • It is cheaper and more flexible than bringing in a joint venture partner.

Mezzanine loans can also sometimes serve important purposes beyond their usual role of providing gap financing. For both borrowers and lenders in the field of real estate, it is a means of diversifying risk and balancing returns.

Why approach Hubbe for mezzanine finance?

At Hubbe, we do well if you do well.

We assist you to benefit from opportunities that arise with alternative financing options such as mezzanine finance. We’re fully geared towards making the process simpler and smoother.

The result: you spend less time in procedures and more on shaping your business dreams. While we work tirelessly in the background.

We’ve already benefitted many in Australia to get ahead with their real-estate and other business ambitions. Our brokers and ready and waiting to provide you with advice and then conduct mezzanine lending negotiations for the best deals.

With Hubbe, you’ll find that mezzanine financing offers you a host of advantages to enable you to maximise your property potential.

Contact us today to find out more about how you can build your future.

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