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+32 2 548 22 11
info@finance.brussels
Brussels Entrepreneurial ecosystem
+32 2 548 22 11
info@finance.brussels
Brussels Entrepreneurial ecosystem

Our financing solutions

Subordinated loan, also known as “mezzanine debt”

Obtaining leverage from banks

Halfway between classic bank loans and equity investments, the subordinated loan, also known as “mezzanine debt”, represents the riskiest debt for investors, because its repayment is subordinated to that of so-called “senior” debt usually offered by banks. In practice, for the entrepreneur, it is medium- or long-term debt that may be repaid or potentially converted into shares in the case of a “convertible loan”.
What is a subordinated loan?
Characteristics of the subordinated loan
Costs of the subordinated loan
Funding procedure

What is a subordinated loan?

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The subordinated loan, also known as “subordinated debt” or “mezzanine debt”, is a financial instrument that allows companies to complement financing from various sources – e.g. bank loans, equity – in order to develop their activities. This loan is called “subordinated” because, in terms of repayment priority, it will always be repaid after bank loans, but before equity.

Concretely, it is a loan contracted from investors within the framework of an agreement which determines, among other things, the duration of the loan, the interest rate and the amount of repayments. As lending this capital represents a higher risk for investors, the interest rate will be set according to the estimated risk and will therefore be substantially higher than that of bank loans.

However, being considered as “quasi-equity” from an accounting point of view, it allows leverage with private institutions. In addition, it is generally granted for a longer term than bank maturities.

Characteristics of the subordinated loan

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Which companies is the subordinated loan intended for?

The subordinated loan is intended for companies with repayment capacity and whose financing need must be complemented by a loan.

How much can finance&invest.brussels invest in subordinated debt?

finance&invest can invest an amount ranging from 100.000€ to 5.000.000€ under the form of a subordinated loan.

What are the advantages of a subordinated loan compared to a bank loan?

The subordinated loan constitutes a quasi-equity contribution allowing the company to obtain leverage from banking institutions.

This means that, thanks to the subordinated debt granted by finance&invest.brussels, a bank loan could be obtained more easily by a company. This financing solution has the advantage of providing a form of risk capital without diluting shareholders.

What is the duration of a subordinated loan?

The duration of subordinated loans ranges from 3 to 7 years. Capital grace periods of 6 to 12 months may be granted on a case-by-case basis, meaning that capital repayments will only start 6 to 12 months after signature of the agreement.

Cost of the subordinated loan

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What is the interest rate of a subordinated loan?

We offer fixed interest rates of 7 to 10%, which represents a relatively low cost for “quasi-equity”, and therefore a product presenting the same risks as company shares for the investor but which is non-dilutive for project promoters and shareholders. The rate of a subordinated loan should therefore not be compared with a bank rate because this rate reflects our estimate of risk exposure.

However, as this loan is very often granted in order to facilitate obtaining a bank loan, it is useful for the project promoter to calculate the average rate obtained by combining the bank rate and the rate granted by finance&invest.brussels. This “blended” rate calculation allows the promoter to understand the total cost of financing. Moreover, you will find that in the medium and long term, it is always cheaper than being diluted in favour of new shareholders.

Funding procedure

The decision-making process for granting a subordinated loan generally takes 3 to 6 months.

Funding steps

Contact with an analyst of finance&invest.brussels to verify project eligibility.
Analysis of your file based on the following elements: added value for Brussels, sustainability, team, market, product, technology, financial (historical & financial plan)
Presentation of the file to the investment committee. If the project receives a positive opinion, the Investment Committee prepares an investment proposal which will be submitted to the Management Board.
Presentation of the investment proposal to the Management Board.
In case of a favourable opinion, our teams will start the final phase, namely negotiations and drafting of agreements.

Documents to provide

ZA business plan of the project
ZAn Excel financial plan over 3 years
ZThe company’s historical accounts (over 2 to 3 years)
ZThe entrepreneurs’ CVs
ZThe latest coordinated articles of association of the company
ZThe shareholding distribution

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