What is Subordinated or Mezzanine Debt?

Subordinated or mezzanine debt is often used and frequently misunderstood in corporate terms. Unlike, senior debt, subordinated debt is a debt obligation that contains both debt and equity characteristics. This means that subordinated debt carries a current interest feature as well as additional yield enhancements that increase the overall returns to the subordinated debt investor. The yield enhancements typically are in the form of stock warrants permitting the subordinated debt investor to acquire common stock of the company. In most circumstances, subordinated lenders bridge the gap that a senior lender is unwilling to fill.

Subordinated debt is particularly appropriate component to a company's capital structure in instances where a company's financial position supports additional debt, but their senior lender is unwilling to increase its loan. Subordinated debt is an extremely flexible form of financing. From a senior lender's perspective subordinated debt is generally treated as equity because it is subordinated to their loan. As a result, a senior lender may view a company to have strengthened its capital position as additional capital has been raised that is junior to their loan. This may allow the company to leverage the amount of subordinated debt as much as two times. Because it has both debt and equity characteristics it can be a very useful financing tool and an appropriate component of a company's capital structure. Subordinated debt is much less expensive than raising equity and in instances where a company has additional debt capacity beyond that provided by their senior lender, subordinated debt should prove to be the optimal manner in which to raise additional capital.

What should my business plan include?

A business plan submitted for reviewshould contain the following information:

· Investment Size and Structure Requested
· Description of the Product or Service
· Brief History of the Company
· Business and Marketing Strategy
· Analysis of the Market and the Competition
· Full Resumes of Key Management (Highlighting Industry and Market Expertise)
· Current Financial Statements and Projections

This document should be a working document for the company, used in long-term planning, and not simply a sales tool for fundraising. Business plans may be submitted via either e-mail or regular mail (hard copy).