What's the difference between debt, equity and mezzanine
Choosing the right type of finance to fund your plans is
important and can influence your future success. Finance Wales can
provide debt, equity and mezzanine finance. Each has its pros and
cons, depending on the type of business you own/run and what you
plan to do with our investment.
Debt investments (loans)
If you take out debt investment (a
loan) to finance the growth of your business, you will need to
repay the amount you borrow by an agreed date together with any
The interest rate we agree when you take out a
loan from Finance Wales is based on an SME's individual
circumstances and fixed for the loan term – usually between 1 and 5
Loans are often the first option businesses consider when
they’re thinking of funding their future growth plans, but equity
investment is another potential option.
To raise equity investment you’ll need to sell shares in your
company to an investor like Finance Wales. Unlike a loan, you
don’t have to make regular repayments and can free up vital
cash-flow. The investor will be repaid at a future date once
your business has grown.
A hybrid of debt and equity financing,
mezzanine is typically used to fund the expansion of existing
companies. Mezzanine finance can be very flexible and can be used
for a growing business to bridge the gap between conventional
secured lending and the value of a new project or acquisition.
Loans are not usually secured by assets but based on your company's
ability to repay from cash flow. Equity provisions can also be
incorporated into deals as a further option.