Financing gap for SMEs and the mezzanine capital

Abstract

Mezzanine capital is a hybrid instrument which combines the benefits of debt and equity and represents an alternative source in financing the start-up and expansion of SMEs. The paper analyzes the mezzanine financing instruments that include private placement instruments (private mezzanine) and capital market instruments (public mezzanine) and the level of development in the market for mezzanine financing that varies across Europe: while SMEs in some countries can choose from a wide range of different products, other countries still have ground to make up in this area. Taking into consideration the financing gap of the SMEs in EU, the mezzanine capital represent an important option for covering this gap. This instrument should be considered in the context of the international financial crisis which affects dramatically the possibilities of financing for the SMEs. Thus, the paper presents the main features and advantages offered by this hybrid financing instrument from the firms and investors' perspective but also the main challenges.