OVERVIEW – Information on mezzanine financing in Canada . When do ‘ Mezz ‘ bridging finance solutions work, and when are they wrong or unavailable for your firm
Mezzanine financing offers a unique allure to Canadian business owners/financial managers that seek additional capital for their firm. However in certain cases this type of finance solution is potentially either wrong for your firm, or, in some cases simply not attainable. Let examine what we call the ‘ powerful persuasion’ of the bridging finance capability of ‘ mezz ‘ and see when it works, and when it doesn’t… Let’s dig in.
Some of the key uniqueness of Mezzanine solutions revolves around the fact that it has unique elements of debt and equity – rare or non existent in almost all other financing solutions you might be looking at. This is because it’s a ‘ 2nd position’ financing that stands behind any secured lenders that might already by in place.
The other persuasive argument around this solution is the issue of collateral – essentially there is none, other than our aforementioned 2nd position on assets. Another key item is the fact that other secured lenders tend to ‘ love ‘ your mezzanine finance scenario if only for the fact that it is treated as ‘ equity ‘ on the balance sheet by secured/term lenders/lessors.
If the allure of ‘ MEZZ ‘ is that attractive how easy is it to get approved. Companies that are traditionally candidates should have attributes in the following areas:
– Established business
– Operating in a viable industry
– Good candidate for growth
The minimum amount of financing done in this area is typically $1,000,000.00 and that clearly is on the small size. Larger deals preferred! In some, but not all cases the lender will also ask for a future equity position in the firm, which owners must certainly consider as a factor in considering this method of finance. Top experts advise that firms can usually expect to receive ‘ mezz’ financing at least 1-3 times its cash flow – although clearly amounts will vary.
Any type of debt, secured, or unsecured (Mezz) will inject a certain number of ratios or covenants into the financing. These typically focus around debt to equity, cash flow coverage, etc, but in some cases might even limit your firm to what it can spend and how re Capex or shareholder compensation/dividends.
We haven’t mentioned the ‘ cost of financing ‘. Suffice to say that borrowing rates for mezzanine bridging finance will typically always be in the ‘ teens’ which reflects the risk a 2nd position lender takes on transactions such as this . Owners/managers typically benchmark this financing cost against other options such as issuing equity which is of course even more expensive.
Is mezzanine bridging finance right for your company? Seek out and speak to a trusted, credible and experienced Canadian business Financing Advisor with a track record of success who can assist you with your business finance options.
Author Stan Prokop – 7 Park Avenue Financial :
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 – Completed in excess of 100 Million $ of financing for Canadian corporations . Info /Contact :
7 PARK AVENUE FINANCIAL = CANADIAN MEZZANINE AND BRIDGING FINANCE EXPERTISE
7 Park Avenue FinancialSouth Sheridan Executive Centre
2910 South Sheridan Way
Office = 905 829 2653
7 Park Avenue Financial
Canadian Business Financing