Home | FAQ | Debt, equity and mezzanine

What's the difference between debt, equity and mezzanine financing?

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 interest payable. 

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 years.

Equity

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.


Mezzanine

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.