Best Mezzanine Finance Options Available in NZ Today
Generating the capital necessary to start a business that needs a significant amount of money to get going is a difficult process for many people, especially those that have never started a business before. You may have the best business plan, be thoroughly researched and be highly organised with a compelling action plan, but without the financial capital to actually purchase what is necessary to get your business up and running, you may never see your company get off the ground floor. Fortunately, there are many lenders in the world today that are looking for start-up companies that they can invest in because they see profit potential. Unlike a regular bank that is simply looking at your monthly income, your credit rating, and your ability to make your monthly payment, these investors are looking at a much bigger picture, the potential for generating substantial amounts of revenue. NZ mezzanine finance options are available for many people, but they may not be the best choice for everyone. Here is a quick overview of what you can expect when you are considering mezzanine financing options, and how you can also benefit from using these investors.
Overview Of Mezzanine Financing in Auckland and New Zealand
When you are dealing with investors that will allow you to borrow money to start your company, some of them are not looking for collateral but a financial stake in the company itself. Many of them will accept common shares, representing their claim on the company, which will increase in value once your business starts earning profit. This type of lending is called unsecured lending because, unlike a traditional mortgage which uses the business owner’s home or company-owned buildings as collateral, these investors are essentially wagering that you will be able to get your company up and running, making substantial profits, which will also benefit them. However, to offer this type of financing without collateral, to compensate for the risk they are incurring, they will always request a much higher interest rate. If you have ever been in a tight financial situation where you had to use a payday loan company to borrow a couple thousand dollars on a moments notice, the high interest rates that are charged by payday loan companies are done for the same reason that mezzanine capital lenders charge high amounts.
Understanding How Mezzanine Loans Are Structured
The financing for mezzanine loans usually consists of what are called preferred stock or subordinated notes. These financiers are looking for a specific rate of return on their investment which can be paid in various ways. Similar to a regular loan, you can make periodic payments to the lenders for the outstanding balance that is owed to them. The amount of interest that you pay will be dependent upon whether you are borrowing money with a fixed or fluctuating interest rate. It is always preferable for the borrower to get a fixed interest rate so they will know exactly how much they have to come up with each time they make a payment. You can also do what is called a PIK loan (Payment In Kind) and interest rate which does not require a monthly payment, but simply adding what you owe to the actual principle amount of the loan you have borrowed. Each and every company that you work with is also looking for some type of ownership in the company that they are starting. In fact, the reason that they are lending you money is because they believe, to some degree, that your ideas and business will work. Mezzanine capital is usually provided with what is called an equity stake in the company itself, a form of collateral that is very different from a traditional loan.
Other Reasons For Looking At Mezzanine Finance Options
If you are not starting a company, but you would like to acquire a company, this type of financing is often used for what are called leveraged buyouts. this money is used in conjunction with other forms of financing including second lien loans and senior loans, and are often used as a measure of last resort. If it is a very equitable deal, both the buyer and the mezzanine lender will see the profit potential, and will work together to make this work. Mezzanine finance options are also considered with financing real estate projects, sometimes used by developers to make sure that they have enough money to complete the project. The collateral and this type of financing is a stake in the property that is being developed, making this a very lucrative deal for mezzanine financiers. All of these reasons for utilizing mezzanine capital are always designed to help both the borrower and lender achieve a substantial amount of profit.
Finding mezzanine finance in NZ
There are a few finance providers who can provide this type of funding to New Zealand businesses. Most are unknown to the general public. You can ask your lawyer or accountant for references as they will frequently deal with different finance firms on behalf of their clients.
Another option is to search Google and look for “mezzanine finance in NZ” or” mezzanine finance in Auckland”. One of the service providers you will find is Global Pacific. They are among the leading finance companies in the country and work with many clients on all sorts of commercial projects. These range from property development, through company acquisition to equipment financing and many other types of commercial funding work.
If you have a requirement for mezzanine finance in NZ, be sure to visit the Global Pacific website for more information.