What is mezzanine financing?

Have you ever thought about mezzanine financing? The term “mezzanine” already indicates that it is a form of financing that is located between debt and equity. Mezzanine financing can be executed in the variant of an equity mezzanine. This corresponds to a silent participation of third parties or value-securitized profit participation certificates. The former can be implemented in a straightforward manner, while the latter are issues that require a prospectus and must be approved by the German Federal Financial Supervisory Authority (BaFin). If you meet the conditions stipulated by the German Commercial Code (HGB), you can carry the equity capital contributed as equity on your balance sheet and thus improve your equity ratio. This has a beneficial effect on the opportunities and conditions for additional debt financing. The German Commercial Code requires long-term provision of the mezzanine capital, an explicit agreement on the subordination of the mezzanine capital, pro rata loss sharing, as is the case with equity, and performance-related remuneration for the provision of the mezzanine capital.

Make sure that the mezzanine capital is not executed as a subordinated equity loan, because it must then be attributed to loan capital. Although this provides you with liquidity, it reduces the equity portion of your business and also has disadvantages under liability law compared with equity mezzanine financing.

Mezzanine capital is mainly offered by private equity firms.

You may be open to selling shares in your business to keep it liquid.


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