The real estate industry is among the most lucrative businesses you can venture into in the contemporary world. The demand for commercial property has skyrocketed over the last few years, making it a mouth-watering investment opportunity. Nonetheless, you must be ready to handle all the financial demands to start and maintain your operations in this sector. Mezzanine funding is among the best funding options, but not all investors know how to use it to invest in commercial property. The information below explains this subject clearly to give you a deeper understanding.

Definition of Mezzanine Financing

A mezzanine loan is a knot combining equity financing and debt. This form of commercial real estate financing isn’t entirely debt or equity funding, but it plays a significant role in combining the two. Such a loan allows the debtor to lend the borrower money using a debt-like funding structure and convert the debt to an equity interest upon loan defaults.

Blending debt and equity loans makes mezzanine financing one of the loans with the highest risks and interest rates. This funding type is below equity financing but above debt, meaning you can sometimes pay interest rates higher than 10%.

Qualification Requirements for Mezzanine Financing

Minimum Revenue

Most lenders will ask for a minimum revenue of $10 million. Depending on the situation, such as your company’s size, some debtors may go below that amount, but $10 million is the standard minimum revenue.

A Reliable Cash Flow

As mentioned above, mezzanine financing is a high-risk debt. Therefore, the lender must confirm the cash flow in your commercial real estate business and guarantees timely and adequate loan servicing.

A Feasible Expansion Plan

A debtor may ask for a detailed and feasible plan of how you intend to expand your commercial property enterprise. You can do so via acquisition or an initial public offering (IPO).

Consistent Profitability

Profit maximization is among the top business objectives, making it an item of interest among many mezzanine loan lenders. You may have a reliable cash flow, but that doesn’t mean your business is profitable. You must prove to the debtor that your profits will allow you to repay the debt within the set time and without delays.

A Credible Track Record

Lenders will ask for your loan repayment track record, with some going to the extent of checking your credit rating.

Running a commercial real estate business can be pretty demanding financially. Fortunately, you’ve got several funding options, including mezzanine loans. Consider talking to KMS Funding today, and an expert will get back to you with all the necessary assistance in funding a commercial property investment.