How Mezzanine Financing Works Structure and Agreement Types

Structure and Agreement Types
In mezzanine financing, companies receive capital from lenders (or investors) in exchange for either:
• Warrants: Options to purchase company shares at a predetermined price in the future.
• Convertible Notes: Debt that can be converted into equity under certain conditions.
• Profit Participation: A percentage of the company's future profits or cash flow.
This financing mechanism often allows businesses to borrow larger sums than they could via senior debt alone, without immediately giving away equity or control of the company.
Loan Terms and Conditions
Mezzanine financing generally comes with a fixed interest rate (often higher than that of senior debt), typically between 10% to 20%. Some mezzanine financing deals allow for payment-in-kind (PIK) interest, where interest is deferred and added to the loan balance rather than paid in cash. The repayment structure can vary, with options for cash or conversion to equity, depending on the agreement.