Between Debt and Equity

Dealing with Debt

Dealing with Debt

Companies stand little chance of obtaining money from banks if they represent an industry with a less optimistic outlook, want to engage in a risky project or are unable to provide loan security. However all is not yet lost. There is one more way of raising money in addition to commonly used debt or equity financing. Financial products which do not fall unambiguously into either category are known as mezzanine. They include subordinated debt and debt convertible to shares. Mezzanine is a good instrument to finance risky ventures for companies which already have a solid track record and want to put into practice another idea to enhance their value. The cost of mezzanine is on average 14%, making it more expensive than bank loans but cheaper than money from capital markets. According to experts, its greatest advantage is its flexibility resulting from the product being made to measure for a specific business. Mezzanine financing has been present on the Polish market for just a few years, mainly targeting medium-sized and large enterprises. Recently, however, such instruments have also become available for SME. Michał Popiołek from mBank says that this model of financing has not gained popularity in Poland and remains poorly developed due to two factors: easy access to debt financing and low awareness of mezzanine products compounded by the complexity of their underlying mechanism, which discourages businesses even if it were a perfect solution for them. Rafał Lis, manager at Mezzanine FIZAN, concurs with the opinion that the Polish mezzanine market is very limited as of now, but is optimistic about its development prospects. Last September his fund successfully completed seven mezzanine transactions for a total amount of over PLN 75 million and at present more than ten are being prepared. The fund is interested in investing PLN 5-25 million per project, that is significantly less than the minimum value limit typically set by mezzanine offering institutions at EUR 5-7 million.
Puls Biznesu

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