Enterprises need external funds depending on the nature of their line of business, the market they operate on and the current capital structure. They may develop and implement their strategies faster thanks to engagement of external capitals. This is why it is so important that when you select the kind of financing, you must build a proper funding structure adjusted to what the company needs. If you select the right kind of crediting for the business needs, i.e. you optimize the enterprise funding structure, you may considerably cut down the costs of financing and increase enterprise profitability. Our priority is to select the right form of financing corresponding to the enterprise’s needs for executing the current strategy, by:
– choosing the right funding structure and optimizing it
– choosing the person funding a given project
– creating a financial model
– representing the Client before financial institutions
– negotiating terms and conditions as well as provisions of the financial support agreement with the financial institution
– checking if the negotiated provisions of agreement are worded correctly
Investments funded from a loan are most often tangible investments (purchasing equipment, machinery, means of transport, properties, building industrial facilities), non-tangible investments (purchasing patents, concessions, licenses), and financial investments (purchasing securities).
Project finance will allow you to finance those capital-consuming investments. The basis of project finance is a special purpose vehicle (SPV) which is isolated from assets of the project initiator. It is created for the purpose of operating and managing the project. Therefore, in the event of financing through project finance, investors assess only the profitability of the initiative and not the financial standing of the project initiator. Additionally, thanks to financial and accounting isolation of the project, you may use more convenient legal and fiscal regulations and other accounting systems. Project finance involves a high leverage ratio; this solution is convenient because it will enable the Investor to limit the degree of financial involvement in the project, and on the other hand loaners expect high financial surplus generated by the project. An advantage of this method is very high flexibility of debt repayment that depends on foretasted inflows from project execution. .
Mezzanine financing is a form of financing that gives the lender the right to finance their equity. It is convenient when the enterprise does not want the dilution of ownership structure. It is an auxiliary financing between debt (loan) financing and capital financing (stock issue). The basic difference between Mezzanine financing and private equity financing is non-participation in the ownership structure (as it is the case with private equity funds).
Mezzanine financing is intended for entities with stable business basis, pursuing an economic activity for long period of time, with a real growth perspective based on completed investments. Start-up projects are not executed through this kind of financing. The company must generate a financial result that will be used to pay interest fees.
Mezzanine financing is most often used in the following situations:
– dynamic growth of enterprises
– restructuring of capital
– leverage and managerial buyouts
When you issue bonds, you may determine any maturity dates and decide how often subsequent tranches of capital will be paid out. Therefore, you may adjust the source of funds to the progress of investment. If an investor needs a large cash injection for the start-up, they may obtain all the capital at once or adjust the inflow of cash to the development of works.
Basic benefits from issuance of bonds:
- No principal installment. You regularly need to pay interest only, whereas you pay the nominal value of bonds on the maturity date. This facilitates financing specific projects by issuing bonds.
- The issuer may determine the maturity dates, frequency of interest payments, amount and type of interest rates (fixed or variable).
- They may add some extra options such as exchanging bonds for stocks, a right of early redemption by the issuer or bondholders.