A mezzanine loan is a type of financing blending debt and equity. In some cases, a business may need financing for a project/acquisition and traditional lenders are unwilling or unable to offer the full amount. This is where creative financing, such as a mezzanine loan, comes in.

The interest rate on a mezzanine loan is often high, and the repayment terms are flexible.

How Does a Mezzanine Loan Work?

A mezzanine loan is a combination of debt and equity. In some cases, the arrangement can offer equity interest to lenders- depending on terms and how it all unfolds. Typically, a mezzanine lender works with a company that has a successful track record. A mezzanine loan can be used to acquire an existing business or expand operations for a profitable business.

Advantages vs. Disadvantages of Mezzanine Loan for Borrowers

Just like other financing options, a mezzanine loan offers advantages and disadvantages for borrowers.


The advantages for a borrower with a mezzanine loan are:

• Access to the capital they need to expand their business or purchase a new one. 

• Minimize equity dilution and borrow more than a traditional bank would be willing to lend without having to trade a significant amount of equity. 

• Interest payments can be tax-deductible. 

• Have a variety of repayment options regarding interest payments: with cash, add to the loan balance, or provide equity-like instruments to lenders. 

• Appears as equity on a balance sheet, which shows lower debt levels and makes it easier to qualify for other financings.  


That being said, there are also some disadvantages to using a mezzanine loan. We will look at those below:

• If things don’t work out as planned, a borrower may face consequences, including substantial debt. 

• If a borrower defaults on the loan, they may be required to provide equity interest to the lender. 

• A mezzanine lender may set certain criteria that must be met.  


If you are a business owner and want to expand your business or acquire another one, a mezzanine loan may be an option for you. However, you must weigh the advantages and disadvantages before making a decision. Contact Triport Lending today, we will be happy to help you decide what is best for you and your business.