Advantages | Mezzanine Capital Advantages
Lower Cost Alternative to Traditional Private Equity
BIA Digital Partners' subordinated debt and preferred equity provides companies with access to needed capital without the excessive dilution of common equity or exorbitant returns associated with traditional private equity firms.
How? Inclusion of debt as part of the capital structure reduces required returns and keeps the majority of equity in existing investors' hands.
Less Restrictive than Secured Senior Debt
Senior lenders require numerous constraining financial covenants, demand a primary lien on the company's assets, and impose restrictions on raising additional debt or prepaying the principal. Our securities, although not without covenants and restrictions, provide more latitude to the Company. After all, our returns are usually partly determined by our equity stake in the Company. This aspect unites the interests of BIA DP and the portfolio company, creating a mutually-beneficial relationship rather than the divided interests of a company and its senior lender.
How? Fewer, less restrictive requirements. Inclusion of equity promotes a mutually-beneficial relationship. Expanded borrowing capacity.
While BIA DP prefers current returns on its investments, substantially all other payments may be deferred to enable companies to recapitalize and/or make capital improvements. Investments may be structured as debt or preferred equity to fit the needs of shareholders and senior lenders. Redemption and maturity can be structured between one and seven years, depending on the anticipated cash flows of the company and needs of the other capital providers.
How? The principal and, in many cases, a portion of the interest are not due until maturity. Flexible length of loan.
Provides Liquidity for an Owner without Changing the Ownership Structure or Extracting Needed Growth Capital
Having invested significant time and money into growing a business, many entrepreneurs rightfully desire to realize personal profits but without giving up their ownership control or withdrawing too much cash from the business, thereby restricting future growth. Our hybrid debt/equity investments provide this liquidity without significantly reducing ownership or straining liquidity.
How? Inclusion of debt allows previous investors to keep more of their equity and allows for cash to be kept in the Company and be used for continued growth. The principal, and in some cases, a portion of the interest are not due until maturity.