What is Mezzanine Financing?

Mezzanine financing refers to a form of financing that is between priority debt and equity financing in terms of risk and return. Mezzanine financing generally takes the form of subprime loans, but it can also take the form of convertible notes or preferred shares. ^[1] For companies and stock recommenders, mezzanine investment usually provides long-term financing in a very flexible form, which is less diluted than the stock market and can be adjusted according to special needs. The payment of mezzanine financing can also be determined based on the company's cash flow situation.

Mezzanine financing

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Mezzanine financing is a combination of priority debt and risk in terms of risk and return.

Mezzanine financing is unsecured

Financing companies can generally consider mezzanine financing in the following situations

1. Lack of sufficient cash for expansion and acquisitions;

2. Existing bank

   In 2006, mezzanine financing developed well in developed countries. It is estimated that

   Mezzanine financing is a medium between lower risk senior debt and higher risk equity investments

   Financial forecast based on company situation

   Preparing business plans for investment institutions

   Submit business plan to investment institutions for presentation

   Cooperate with institutions with investment intentions to conduct due diligence

   Negotiating the terms of an investment agreement

   Sign an agreement

   Mezzanine returns are usually obtained from one or more of the following sources:

   1. Cash coupon, usually a floating interest rate that is higher than the relevant interbank interest rate;

   2. Repayment premium;

   3.

   Mezzanine financing is very flexible

   The benefits of mezzanine financing providers are also different

   Priority lenders still do not welcome the existence of secondary lenders, even if secondary lenders have only

   The first is the IMF, which is a dark loan of fake stocks. The so-called fake stock dark loan, as the name implies, is that the investor invests in the project by way of equity but does not actually participate in the management of the project. At a certain time, the shares are withdrawn from the project. This method is mostly used by foreign funds. The disadvantage is that the operation cycle is longer, and the company's shareholder structure and even the nature of the company must be changed. There are many foreign funds, so if you invest in this way, the nature of domestic companies will be changed to Sino-foreign joint ventures.

   The second method of financing is bank acceptance. The investor will hit a certain amount, such as 100 million, to the project company's company account, and then immediately ask the bank to issue a 100 million bank acceptance. The investor took the bank acceptance. This method of financing is of great benefit to the investor, because he actually uses 100 million yuan several times. He can take the 100 million yuan bank and accept it at another bank for another 100 million yuan. At least 80% can be discounted. But the question is whether a bank with 100 million yuan in the company's account can issue 100 million yuan in acceptances. It is likely that only 80% to 90% of the banks will accept it. Is to open 100% bank acceptance, then the amount of funds on the company account allows you to use is still a question. It depends on the level of the company and its relationship with the bank. In addition, the biggest drawback of acceptance is that according to national regulations, bank acceptance can only be opened for up to 12 months. Now most places can only be opened for 6 months. That means you have to renew your visa every 6 months or 1 year. It takes a lot of time to spend money.

   The third method of financing is direct deposit. This is the most difficult method of financing. Because making direct deposits is in violation of the rules of the bank, the relationship between the company and the bank must be particularly good. Open an account from the investor to the designated bank of the project party and deposit the specified amount into your account. Then sign an agreement with the bank. Promise that the money will not be misappropriated within the prescribed time. The bank will give the project party a loan equal to or less than the same amount based on this amount. Note: The promise here is not a pledge of the bank. He did not agree to take the money for pledge. What is agreed to be pledged is another financing method called a large pledged deposit. Of course, that financing method also has its violations of bank regulations. It is necessary for the bank to sign a commitment to guarantee that the payment will be closed 30 days before the expiry date. In fact, after getting this thing, he can take it to a bank in another place for refinancing.

   The fifth method of financing (the fourth is a large pledged deposit) is a bank letter of credit. The state has a policy that a bank letter of credit issued by a global commercial bank, such as Citi, which agrees to finance the business is deemed to have an equivalent amount of deposit in the corporate account. Many companies used this bank letter of credit to make money in the past. Therefore, the national policy has undergone a slight change, and it is now difficult for domestic enterprises to use this method for financing. Only foreign-funded enterprises and Sino-foreign joint ventures are allowed. Therefore, if domestic enterprises want to use this method for financing, they must first change the nature of the enterprise.

   The sixth form of financing is entrusted loans. The so-called entrusted loan is that the investor sets up a special fund account for the project party in the bank, then deposits the money into the special fund account, and entrusts the bank to lend the project party. This is a better form of financing. Usually the review of the project is not very strict, requiring the bank to make a commitment to the project party responsible for collecting interest and repaying the principal each year. Of course, those who do not repay the principal need only promise to collect interest every year.

   The seventh financing method is through money transfer. The so-called direct payment is direct investment. This rigorous review of projects often requires mortgages or bank guarantees on fixed assets. Interest is also relatively high. Most are short-term. The lowest personal contact is an annual interest rate of 18. Generally above 20.

   The eighth financing method is hedge funds. Now there is a type of entrusted loan on the market that does not repay principal and interest, which is a typical hedge fund.

   The ninth financing method is loan guarantee. Many investment guarantee companies on the market now only need to pay more than bank interest to get much needed funds.