Bridge financing

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Bridge Loan vs Mezzanine Loan: Understanding the Differences and Choosing the Right Option

In commercial real estate transactions, both bridge loans and mezzanine loans serve as valuable financing tools. Bridge loans serve the purpose of providing short-term funding to bridge the gap between transactions, while mezzanine loans offer long-term financing. Bridge loans commonly rely on collateral, such as property or inventory, to secure the loan. With a mezzanine loan, the lender has the ability to convert to ownership (equity) of the borrower’s company in the event of non-payment or default.

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What are the Benefits of a Mezzanine Loan?

A mezzanine loan offers numerous benefits to both the issuer and the investor. For the issuer, it provides increased access to capital, a reduction in capital cost, and enhanced equity returns. For investors, they can enjoy attractive investment opportunities, with the potential for high returns and the possibility of acquiring an equity stake in successful companies.

Are Mezzanine Loans Risky?

Mezzanine financing sits above pure equity but below pure debt in terms of seniority. This means that it offers some security to investors, but also carries higher risks compared to traditional debt instruments. On the flip side, mezzanine financing also presents the potential for higher returns.

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