When equity runs short — the subordinated component.
Lucrative projects often fail not on the senior loan, but on the equity gap above it. Mezzanine capital closes exactly that gap and is in part counted by banks as economic equity. I explain the component clearly, structure your overall financing — and tie the subordinated part in via licensed partners.
What mezzanine capital is — and what it achieves
Mezzanine sits in the capital structure between the first-ranking senior loan and true equity. It is subordinated in its security, so it carries more risk than the bank — and therefore costs more. Its value lies in the leverage: a small subordinated component can make a project possible for which your own equity would otherwise not be enough.
The structuring is decisive. For a bank to recognise the component as economic equity, it must be clearly subordinated. In practice these are instruments such as participating loans, subordinated loans, typical or atypical silent partnerships, or profit-participation rights.
Who may broker which component — and my clear line
Precision is mandatory here, because the components are regulated differently:
| Component | Character | Who brokers |
|---|---|---|
| Senior loan / bridge | first-ranking loan | Perini, under §34c GewO |
| Subordinated / participating loan | asset investment, subordinated | licensed partners (§34f GewO) |
| Silent partnership / profit-participation right | asset investment | licensed partners (§34f GewO) |
| Equity / joint venture | entrepreneurial participation | licensed partners |
When mezzanine pays off — and when not
Mezzanine is expensive. It pays off when the additional leverage creates more value than it costs: a project becomes possible at all, an opportunity can be secured, tied-up equity is freed for a further project. It does not pay off when it merely papers over a shaky calculation. I calculate this through with you honestly — and say so too when the subordinated component is the wrong answer.
Frequently asked questions
Do you broker mezzanine capital yourself?
Why does a bank count mezzanine as equity?
How much more expensive is mezzanine than a bank loan?
Can you still organise the complete structure for me?
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