Reasons for using mezzanine capital

The choice to request mezzanine capital has many advantages. However, you need to be patient and wait for a while.

Advantages:

• It fills a financial gap and provides a capital base to carry out corporate projects
• Improves the balance sheet structure and therefore solvency (positive impact on the company’s rating and financial margin)
• Consolidation of financial equity (no dilution of capital or loss of property rights)
• Interest is tax deductible
• Flexible credit arrangement
• Greater entrepreneurial freedom and the right of the lender of the mezzanine capital to intervene

Disadvantages:

• Higher costs compared to traditional loans
• In terms of equity, the capital is only made available with a time delay
• Greater transparency requirements

Characteristics of mezzanine capital

It is worth comparing the properties of mezzanine capital with those of equity or traditional loans. Here is an overview.

	Traditional loans	Mezzanine	Equity
From an economic perspective	Liabilities	Equity	Equity
From a legal perspective	Liabilities	Liabilities	Equity
Tax implication	Option to deduct debt interest	Option to deduct debt interest	Tax on capital
Investor participation	No direct participation	No direct participation	Direct participation
Duration	4-5 years, fixed term	5-8 years, fixed term	Long term
Security	Guarantee generally	No security	No security
Payment reference	Defined by contract	Not defined	Not defined

Source: Credit Suisse Economic Research

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Last modification 30.10.2023