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Instead of having businesses close down permanently due to coronavirus shutdowns or temporary reductions in demand, why can't they be allowed to simply convert their back rent and debt payments into mezzanine debt and avoid closing permanently?
Why mezzanine debt instead of any other kind of debt?
Instead of having businesses close down permanently due to coronavirus shutdowns or temporary reductions in demand, why can't they be allowed to simply convert their back rent and debt payments into mezzanine debt and avoid closing permanently?
Hello ncole1. Thanks for coming in today. As you know, I artillery77, am Human Resources and I've been able to help you.
For the next year, the powers that be have decided that you will continue to work this year, but instead of us paying you, you will pay us. A year from now, we can re-evaluate if you will continue to pay us or if you will get any pay whatsoever. The good news is we will let you borrow the amount of money you are to pay us....you'll just need to fill out a bunch of paperwork and pay interest.
As for feeding yourself or paying your own rent, that's your problem, of course. As a faceless "business owner" I can just include you in the blanket that you must be one of the 1% and it won't be a problem.
I hope you are happy with the generous accommodation we've put together for you. Please sign here to be personally liable for this for the rest of your life. Also, be sure to give all equity and balance sheet information over to the government so that we will know exactly how much to tax you in the timeframes going forward.
BRB: Gotta run down to that pizza store and hair salon and tell them about mezz financing
The Fed has lowered the minimum for its Main Street lending program from $1 million to $100K, so yeah it’s entirely possible now for a pizza parlor or hair stylist to get money directly from the “source”. Is this a great country or what?
Whatever you want to call it, borrowing money to get through tough times is only reasonable if you have some idea of how long tough times will be and that you will be profitable again in the future. The problem so many small businesses face right now is there is not even a reasonable guess to that much less a calculable number.
Many of the responses here are worded as though I am suggesting that companies actually acquire more debt. But a company that is facing a forced liquidation has already gotten into the debt. To say that the company is going even deeper into debt is to assume that the company will continue to spend more money than it can bring in. Why believe this to be true when we are dealing with a short-term problem that can turn around once the crisis has passed? Is it unreasonable to assume that a business that was profitable pre-pandemic will become profitable again post-pandemic?
Why mezzanine debt instead of any other kind of debt?
Mezzanine debt is unsecured, meaning that the creditors cannot force a liquidation of company assets. This allows the company to "buy itself time" to gets its finances in order. In return, many mezzanine debt agreements allow the bondholders the option of converting the bond into a stock. Even if the bondholders exercise this option, the company is not forced to completely close.
Consolidating debts and floating them is mezzanine debting
Kind of a cool word it’s sort of like saying gig job instead of day labor or temp
It still stinks just got a pretty ribbon on it
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