Mezzanine finance is a hybrid product that sits between traditional bank debt and equity within the capital structure of a business and is typically used to fund the growth of companies.

The availability of finance is key if SMEs are to take advantage of opportunities to drive growth. You may:

• Be looking to bolster your working capital to ensure your business can deliver on new contracts
• Have a capital expenditure requirement that is key to the fulfilment of your business plan
• Require additional development capital to support new products

The Scottish Loan Fund (SLF) has been established to address such needs and therefore could be an important tool to achieve your growth aspirations. It is an attractive funding solution for SMEs, as the unique position of mezzanine finance maximises flexibility.

Whilst the SLF is a mezzanine finance fund, a loan from SLF is in many ways exactly the same as a loan taken from a bank. For example, the process to secure an SLF loan is very similar to the process a company will experience when approaching a bank for funding. However, it does have other defining characteristics that would not ordinarily be associated with bank debt. The table below illustrates some of the key feature of an SLF loan.

Features aligned to bank debt	Other features
An SLF loan will be provided over a specific agreed term, the minimum being 3 years and the maximum 7 years There will be an agreed repayment schedule for the loan Interest will be charged on the loan The loan will be documented via a Facility Agreement Financial covenants will be set	Capital repayment holidays can be provided to match cashflows, for example no capital repayments for the first 2 years of a 5 year loan Redemption premium* is also payable along with capital repayments The Fund will take an exit only warrant** Maven will take board observer rights Full due diligence will be undertaken

*Redemption Premium
This is simply an amount added to each capital repayment and is normally expressed as a percentage. For example, if a company is due to repay £100 of principal in line with the agreed repayment schedule, and the applicable redemption premium rate is 15 percent, the total amount payable by the company is £115.

**Warrant
This is an agreement between the Fund and the company through which the Fund has the right to an agreed percentage of the company value in the event that the business is sold, listed or there is a change of control. For the avoidance of doubt, the Fund would not become a shareholder in the company, rather it is a mechanism to provide the Fund with a small share in any value realised upon an exit event.

Other benefits of SLF finance include:

• The SLF will not take an equity stake in your business, and management retain full operational control.
• SLF funding will provide long-term committed capital with repayments structured in a flexible way to match cash flow, including capital repayment holidays where appropriate.
• The tailored investment and due diligence process is quicker and less expensive than raising equity or venture debt.
• The investment and portfolio team at Maven have a a demonstrable track record of supporting Scottish SME and will work in partnership with you to help grow and develop your business.