There is one core essential to every successful business and
that is working capital. Working capital is a term used to describe cash or
easily liquid-ready assets that is available to a business or entity for use.
Without working capital a business can quickly become dead in the water.
What Are The Different Means To Get Working Capital
To ensure you have money in the bank for bills, inventory
and payroll among other areas of accounts payable, you have a few areas to get
working capital from.
·
Cash revenue
·
Investment dividends
·
Loans and financing
Where Does Mezzanine Financing Stand In The Capital
Department
Commonly called ‘Mezz’ financing, the strategy is available
for publically traded companies as well as businesses that are held privately.
For the most part this type of financing offers both the features of equity
(warrants/options) and debt (principal and interest payments). It is better
ranked than previous debt but less than holders of equity as far as security
goes.
Some of the common uses for Mezz financing are:
·
Buyouts of management
·
Recapitalizations
·
Acquisitions
·
Leveraged buy outs
·
expansions
Elements Of Mezzanine Financing
There are a few elements you’ll want to become familiar with
when considering this kind of financing. The first is payment in kind interest
(PIK). This means there will be an amount of stated interest that is added to
the principal on a periodic basis. This is generally paid back in a lump sum or
bullet installment at the end of the loan.
You will also want to familiarize yourself with cash interest. This is
when Mezzanine financing looks most similar to traditional debt; you will have
regular payments that include interest.
Finally, there is the ownership option. In this instance the lender
receives the warrant or option to change to equity. For the most part in
smaller companies this will be purchased back over time.
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