The name of the financing comes from the French language – although it is already adopted in English and means a mezzanine, a place connecting two floors. Mezzanine is an instrument that combines the features of debt, i.e. credit or loan as well as equity financing, e.g. issue of shares.
Mezzanine financing is targeted at entrepreneurs who accept the creditor’s participation in investment returns. This type of financing is mainly used by small and medium-sized enterprises, which encounter difficulties in obtaining proper financing at the bank.
Mezzanine funds as parties to the agreement perform the function of both lender and investor, unlike private equity funds, which invest only in shares. An important advantage of acquiring this type of investment is the lack of the need to pay back the liability before the end of the investment. At the initial stage only interest is paid off and the capital is returned after the end of the project. It should be remembered that mezzanine is associated with transactions with an increased level of risk on the part of the investor, which involves a multi-stage process of finalizing the contract and requires the participation of professional advisers.