My project is large and I already have existing equity investors and bank financing. But, I still need another tranche of funding to meet my project’s capital needs. I have a strong reputation in the industry and want to leverage that to reduce my cost of capital.
Mezzanine financing is a financing option between senior debt and equity. It is a tool that can provide a flexible solution for the right business.
NextSeed debt can be used as mezzanine financing to satisfy the bank’s debt-to-equity requirements and all the while preserving your equity.
The NextSeed financing portion can decrease the amount of personal funds you need to contribute, meaning you’re retaining more equity at a lower cost. It can also decrease the shares of your company you need to sell, meaning your existing equity investors will not be diluted by bringing on more equity investors.
The bank has a debt-to-equity ratio that it requires to loan you funds, but that “equity” portion can be made up by: your money, your investor’s money or, in some cases, other debt financing. As long as the bank has first lien and is first in line to get paid, they view all other funds through the same lens: subordinate to them.
For business owners with an industry reputation, a NextSeed debt fundraise allows you to leverage your reputation to attract investors from your local community. You can crowdfund mezzanine financing to effectively reduce your cost of capital.