Mezzanine
Finance
Mezzanine Finance
Ranking junior to the senior loan, Mezzanine Finance is effectively a 2nd charge loan which allows developers to enhance their borrowings and reduce their equity requirement.
A Mezzanine Finance provider has higher risk due to their junior ranking. Because of this, they will charge a higher coupon, typically between 15% - 25% per annum. Although this finance is more expensive, when used alongside a well priced senior facility, the blended rate between Senior & Junior can often be more competitive than that of a Stretch Senior Development Loan.
Mezzanine finance also allows developers to continue working with their preferred funders who possibly offer less leverage, and then “top up” this facility via a Mezzanine Loan.
Market Features
Given the nature of this type of finance, it is typically reserved for experienced developers with a strong track record. Loans often start from £250,000 and Mezzanine lenders tend to want to be Junior to a well known senior lender, typically a bank or challenger bank. That being said, there are a handful of options available for those seeking smaller loans or with less experience, providing the development project is profitable and the networth of the sponsor is reasonable.
1 - 36 months | Across UK |
£50k - £20m | Increase ROI |
Up to 100% Development Cost | Reduce Developer Equity |
Up to 80% LTGDV | Up to 100% of Purchase Price |