- Growth capital loans and mezzanine finance are available to relatively mature businesses, and can be tailored to the specific risks in the business, with a repayment plan to match the forecast cash generation.
- Growth capital is a private equity investment for companies looking to finance a change in the business, without a change of control or ownership. Funding comes from a combination of equity and debt sources.
- Mezzanine financing is a hybrid of debt and equity financing that gives the lender the rights to convert to an ownership or equity interest in the company in case of default, or occasionally in cases of outperformance.
What is growth finance?
Growth capital loans and mezzanine finance (sometimes called growth finance) are both flexible forms of debt financing. They are sometimes suitable for businesses that may already have significant borrowings, and wish to finance a transformational change in the business.
Whilst both growth capital loans and mezzanine finance are a form of debt, each shares many of the characteristics of equity.
Both are most appropriate for financing high-growth businesses, and are typically used to finance the expansion of existing companies by VC investors – for product developments, penetration of new markets, infrastructure investments, or for strategic acquisitions.
Growth finance may be suitable if your business is more mature than venture capital funded companies, able to generate revenue and operating profits, but unable to generate sufficient cash to fund major expansions, acquisitions or other investments. Because of this, the owners of the business may have found relatively few alternative ways to secure capital to fund the next stage of growth.
Growth capital can also be used to effect a restructuring of a company’s balance sheet, particularly to reduce the amount of interest-bearing debt. This can significantly increase the amount of cash retained in the business for working capital.
Growth finance gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back on time and in full.
We recommend that if you are looking for growth finance, you always seek advice.
To explore the other finance options for your business, go back to the Finance Journey tool.