Why NZ Borrowers Are Opting To Mezzanine Finance

Mezzanine finance is a new term that is being seen more and more often in the commercial finance world, but it actually is not as new as people think it is. The problem is a lot of times people have not heard of this type of finance before and this is why they think it is so new and never been used before. It has been used by “people in the know” as a secondary tier of funding for a long time but due to the finance constraints of the last few years, borrowers have looked for different ways to get financing for the company growth and to fund their expansion strategies. By knowing what this is, it is easier for people to figure out why so many people are opting for this type of finance over the traditional methods that are available on the marketplace that so many people are using.

Ease Of Mezzanine Financing

Typically a good reason why people will turn to this type of financing, also known as mezzanine capital, is it is easy to obtain the required funding for their business. Since people are putting their business on the line and a failure to make repayments often means the business reverts to the bank, people will find it is easy to get the financing that is needed. Another problem with traditional financing options is that they can take many months to come to fruition. Under a mezzanine finance situation, people will not have to sit and wait for a long period of time to get the approval that they need to make the most of an opportunity. Instead, people will find they are generally approved within a couple of days to a couple of weeks.

Understanding mezzanine finance

Quick Availability Of Mezzanine Funds

Typically since the business has been approved for the funds so quickly the lender is also going to release the funds to the company quickly too. This means that people will find they are able to make use of the money right away and maximise their ability to move in their market. Often people use mezzanine finance to get an injection of working capital so they will not end up struggling to pay their bills on a regular basis. With this access to credit, people will be able to get the products or materials they need sooner so that they can begin the production, construction, or whatever their business activity is.  Clearly the faster they can get their product or service to market the sooner they can make profits and then repay the finance.

If Repayment Fails People Lose Their Business

A downside to this type of finance is people have to make sure they are paying the bank back on time. If they miss a payment without talking to the bank or even letting the bank know the payment may be late people could easily lose all of their business and inventory. This is the hard thing that comes with this type of finance, but it is something that can happen and this is often why the banks are so ready to lend on this type of financing because they are guaranteed to get the business if the loan fails. However, this does not mean that everyone will be approved which can make it hard for people to get the right type of financing for their situation.

Must Already Be Established In The Business World

This is the catch that has led to a lot of businesses being turned away from the financing they need. It is the case that people need to already be established in business with a proven finance record and accounts to show to lenders. Being new in business can be an significant impediment to a fledgling company since they do not have that track record. As a result a lot of businesses get turned down for bank finance. However, people will find that once they are established in business it is easier for them to get the financing they need, but they need to have accurate records of the sales and such to make sure they are able to get the approval they need. Without this type of track record of proven sales or being established in the business world it is very likely that the bank and the other lenders will not provide the funds that are required to help the business continue to grow and reach the new heights they need. However, mezzanine financing can be a way to overcome some of .these obstacles/

As a lot of people have found out it is nearly impossible to get their business financed because of the tight commercial lending market. This is when people should know more about why so many businesses and individuals are starting to opt to mezzanine finance to get the funds they need to expand their business operations. Once people know why so many places are turning to this type of finance it is easy for people to get their business off to a good start and know that they can finally make the sales they need to stay in business for a longer period of time.

 

Global Pacific http://www.globalpacific.co.nz/