What is a Mezzanine loan?

A mezzanine loan a viable option for those seeking to grow their business through acquisition and who do not wish to invest a large amount of equity in the deal.  Mezzanine loans are 5-year, interest payment only structures where principal is repaid through a balloon payment at maturity.  It provides a loan size equal to 3.5 to 4.5 times adjusted EBITDA within its structure.   Founder-owned companies frequently use mezzanine loans to make acquisitions where they harness the lending power of the combined business to raise the full amount of acquisition financing needed.  Mezzanine loan providers use adjusted EBITDA to size their loans, giving them the ability to fund into the growth of the business.  The Company benefits from not having to repay principal throughout the term of the loan.  This creates extra cash flow that stays in the business to support growth. Mezzanine loans are provided by debt funds ad private credit lenders and are considered a riskier form of loan albeit with high return potential.   Investment bankers are helpful to securing mezzanine loans as they can craft a loan that will translate your growth conviction into financial structure enabling continuous access to capital. Perpetually acquiring companies can borrow flexibly under a delayed draw mezzanine loan, giving the capital closing power for acquisitions.  These can reside independently or in a collaboratively in a transaction structure with other senior lenders.