Mezzanine financing

Mezzanine appears when a deal is otherwise fundable but the pieces do not quite reach the purchase price — the senior lender has hit its limit, the buyer’s down payment is committed, and the seller will not carry more. It fills that gap at a cost between bank debt and equity.

The trade-off

Mezzanine debt is expensive by design, because the lender is second in line and largely unsecured in practice. On a smaller acquisition, the added interest cost can absorb enough cash flow to make the business fragile — which is why it suits deals with strong, stable earnings rather than thin ones being stretched to close.