What Fees are Associated with Mezzanine Loans?

Mezzanine loans are subordinate loans typically provided by private investors or private investment groups. Businesses seek mezzanine loans when their primary financing is not sufficient to fulfill their capital needs. Because they are subordinate and typically unsecured, mezzanine loans have additional fees that make them costly.

Up Front Fees

There are not typically up-front fees to secure this type of financing, but mezzanine lenders will seek a portion of future profits. This can either be arranged through stock dividends or equity agreements. Mezzanine loans tend to be very flexible and each loan will have its own unique terms. The degree to which a lender is involved in the future of the company depends directly on the terms of the loan.

Arrangement Fees

There may be arrangement fees associated with a loan if a company uses a third party to locate the financing. This is usually done when the loan is syndicated, meaning more than one investor will be providing the total financing required. Whenever an arranger is used the fees required will be commensurate with the complications of the loan. Arrangers are usually investment bankers or financial advisors.