FAQ


Who is a candidate for mezzanine financing?
What is the difference between a bank loan and mezzanine financing?
When is mezzanine financing used?
Why is mezzanine financing appealing?
How much can companies raise through mezzanine financing?
What is the cost of a mezzanine loan?
What does a mezzanine financing deal involve?
How are the warrants exercised or repurchased?
Why is the Florida Mezzanine Fund offering mezzanine financing?
What is the Florida Mezzanine Fund?  How does it differ from other mezzanine funds?
How long will it take to complete the application process and receive the funds?

Who is a candidate for mezzanine financing?

Businesses that are well beyond the startup phase and historically have positive cash flows.   Characteristically it is a company that needs capital due to growth but has outgrown the lending parameters of a bank.  Also, mezzanine financing works particularly well for companies addressing acquisition and shareholder buyout strategies.

What is the difference between a bank loan and mezzanine financing?

Banks offer secured loans that require an underlying asset to serve as collateral for the loan.  The amount of the bank loan is based on lending margins such as a percentage of receivables, inventory and real estate.  In general, banks prefer to limit debt to the equivalent of three times cash flow.

Unlike a bank loan, mezzanine financing typically is not based on lending margins of a company’s assets.  Mezzanine financing is utilized when a company has good cash flow but does not have sufficient collateral for a bank.  This type of lending is also known as “blue sky loans” because there is no collateral supporting the loan.   However, mezzanine loans are sometimes collateralized by taking a second lien that may be secured by intangible assets such as patents.  Therefore, mezzanine financing is based primarily on the ability to service the debt but not on asset value of the company. Most mezzanine financings are subordinated to bank loans, hence referred to as the “sub-debt,” another name for mezzanine loans.

When is mezzanine financing used?

Mezzanine financing is used for financing growth, recapitalization, acquisitions or ownership changes such as management buyouts.  It funds the gap between bank loans and available equity of the shareholders.

Mezzanine financing is not for those companies that are in the startup and development stage due to their inability to service debt.  Angel investment or venture capital would be a more appropriate funding source for those companies.

Why is mezzanine financing appealing?

Many business owners need more capital than banks are willing to lend.  Without bank funds, owners may be forced to forego growth plans or take on equity partners.  This latter option may be undesirable to most business owners due to shared decision making and other restrictions required by equity investors.

Mezzanine financing offers the company more flexibility than a traditional bank loan.Mezz loans provide equity type capital with only minimal restrictions on how current management/owners operate.

How much can companies raise through mezzanine financing?

Typically, a middle market company raises between $500,000 to $50 million. The Florida Mezzanine Fund offers loans ranging from $500,000 to $30 million.

What is the cost of a mezzanine loan?

Loan payments are typically interest only which are paid either monthly or quarterly.  However, principal payments might be required starting in the third or fourth year of the loan.  The interest rate is typically 12 to 14 percent.  In addition, warrants are issued to the Florida Mezzanine Fund.  These warrants compensate the fund for the equity type risk that is associated with subordinated loans.

What does a mezzanine financing deal involve?

Due diligence required of mezzanine financing is similar to that of equity investing.  Background checks of management and owners are conducted.  The business books and records are reviewed and verified through onsite company visits and conversations with the company’s accountants and lawyers.  The mezzanine documentation is similar to that of bank financing.

How are the warrants exercised or repurchased?

Warrants typically are repurchased with bank financing after the company achieves its growth objectives.  Or the owner might decide to sell the business, which would lead to the repurchase of the warrants in the sale transaction.  In very rare cases the warrants are exercised by the mezzanine lender.

Why is the Florida Mezzanine Fund offering mezzanine financing?

There is an increasing demand for this type of capital by Florida’s businesses.  Florida has the 4th largest labor force, 4th highest number of business establishments and 4th largest Gross State Product, making it the 18th largest economy in the world.  Many Florida businesses seek access to growth capital for acquisitions, recapitalization or ownership changes.  There are limited mezzanine sources for Florida’s business owners.

Mezzanine financing aligns the business owner with mezzanine investors who look to the long term for investment returns.

What is the Florida Mezzanine Fund?  How does it differ from other mezzanine funds?

This is a newly launched financial investment strategy created by a team of Florida-based investment bankers and entrepreneurs. They recognized that business owners were searching for capital alternatives due to the restrictions of bank loans and equity investors.  The Florida Mezz is unique do to the small size of the loans the fund is willing to make.  In addition, Florida Mezz is only the second fund located in Florida.

How long will it take to complete the application process and receive the funds?

The loan process typically takes three to four months from the date of application to the loan closing.  The due diligence process and approval of the business plan requires an in-depth review of the business.