Mezzanine financing is a type of financing that combines debt and equity.
For example, a manufacturing company that has maxed out its bank credit but needs $1.5 million for expansion uses mezzanine financing from a specialty lender — paying a higher interest rate (12%) in exchange for subordinated debt that sits behind the bank's first-lien position, with warrants attached.
Why it matters: It fills the gap between senior debt and equity, providing massive leverage for buyouts without immediately diluting founders.
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