If you’re looking to expand your company, acquiring a business is a smart way to do so. However, such a move also poses a financial challenge to your business. The usual sources of capital include vendor financing, a secured loan from a financial institution, or a buyer’s investment. Most entrepreneurs will also consider mezzanine financing. This is a type of debt secured by certain company assets.
Pros and Cons of Mezzanine Financing
Some of the benefits of this type of financing include the following:
- No equity dilution
- Flexible loan repayment terms
- Can also finance unsecured and intangible assets
- Maximizes total leverage
Some of the cons of this type of financing include the following:
- It can be more costly than term debt
- Needs positive cash flow
Important Details About Mezzanine Financing You Should Know
This type of financing comes with flexible repayment terms, which is important when you have acquired another company. That flexibility will ensure your company has enough cash flow during the initial stages after an acquisition.
Avoids Equity Dilution
Mezzanine financing can be designed so there’s no dilution of equity. This allows business owners to maintain full control of their businesses.
Based on Cash Flow
Since this type of financing doesn’t depend on particular assets as collateral, it increases your flexibility. It relies on your business’s historical and projected cash flow.
Tips on Financing Your Acquisition
When looking to finance an acquisition, here are the tips to keep in mind.
Ask for Advice Early
Getting capital from different sources can affect the return you get on an acquisition. Involve financial partners in the early stages and negotiate for an ideal financing package. That way, once you find a great acquisition target, you’ll be ready.
Cover Your Needs
Arrange enough capital to cover the cost of merging the acquired company with the old one. Lack of enough financial resources can jeopardize acquisitions, affecting the whole company.
After the acquisitions, always stay in touch with your new financial partners. Keep them in the loop of what’s happening with the business. Learn from them, and if you need to make changes to the repayment schedule, inform them.
If you’re thinking of buying a business using mezzanine financing, this information should help you know how to proceed. For more information, call Abundant Wealth Financing. Our financial experts will advise you on the right financial solution for acquiring a business.