Any Tips on Standard Mezzanine Lender Terms for Search ?

by a searcher

5 months ago

Can anyone speak to what "standard" terms are for a mezzanine lender to a search deal?  I suspect that terms will vary deal to deal, but generalities here are welcome because there is a lack of even rough ideas on Searchfunder for mezz lending to searchers. Let's assume total enterprise value is between $5-10 million, multiple is 5x, and the check for the mezz lender is 2-3mm. Let's also assume SBA 7(a) debt is senior to the mezz.
If SBA interest rates are 10-11%, should I expect mezz to be 12-14%
What is normal minimum check size?
Is it standard to allow a PIK toggle?
What are standard amortization/maturity terms? Are balloon/bullet maturities normal?
Who is active in the mezz lending in the space?
Any other key terms we should keep in mind?

1 like
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6 comments

searcher from Ben-Gurion University of the Negev

Super interesting. Trying to leverage this discussion (pan intended)- other than PIK toggle (if exists), what will the embedded equity component look like?
I would also assume that like in any other mezz, there will be an equity pledge too, How will that work? What kind of leverage are we looking at on such a deal and who is pledging the equity?

2 months ago | like reply | 0 likes

professional from Villanova University - Villanova School of Business

Hi ^Searchfunder member‌, I agree with the comments above. Interest rates depending on the lending environment, but 12-15% currently is about right. Minimum check size depends on the lender, and comments above re: the requirement to co-invest can be common. I don't see as much in terms of the PIK toggle, and most of what I see are interest only loans with balloon payments after 5-7 years. There are a lot of other components to think of with mezzanine lenders, but vary considerably from deal to deal and the overall sources of funding. I'd be happy to chat further. Feel free to DM me or you can schedule a complimentary consultation through the link in my bio.

4 months ago | like reply | 0 likes

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