What is Mezzanine Finance?

What is Mezzanine Finance?

Mezzanine development finance is designed to act as a top-up loan, to bridge the gap between the developer’s available deposit and the loan available from the senior lender. Mezzanine funders will usually secure their position by taking a second charge over the development to ensure their capital is secure.

By supplementing their borrowing with mezzanine finance, property developers can secure the highest return on investment, with the lowest deposit contribution.

This financing option is generally used to reduce the deposit needed to undertake a property development project. Funding can be used to reduce deposits, to fund a gap in deposit, or to allow you to retain funds for future deals.

1 -Borrow up to 90% loan to cost
2- Terms from 6-24 months
3- No maximum loan size
4- Experienced developers preferred
5- Planning permission in place or permitted development rights available
6- Loans can include part of the land purchase costs

How Much Can I Borrow With Mezzanine Finance?

We can offer mezzanine funding from £250,000 with no maximum loan size. We can usually fund up to 90% of the total project costs using mezzanine finance.

How Much Will Mezzanine Finance Cost?

Mezzanine finance tends to be priced on a case-by-case basis. We work with lenders across the whole market to ensure we always secure the best terms for your project.

Rates usually start at 1% per month. As the provider is sitting behind the main development finance lender, they are taking a much higher risk and will charge a premium as a result.

Pricing will usually depend on the following factors:

  • Amount of deposit input
  • Likely demand for the finished product
  • The scheme being lent against
  • The strength and experience of the borrower
  • The location of the project
  • The amount required

Secure the Lowest Mezzanine Finance Rates

Our advisers can offer market-leading mezzanine funding – fast. We work with lenders across the sector to provide fast and reliable mezzanine finance up to 90% of the project costs.

What Locations are Eligible for Funding?

We can offer funding for schemes across England, Wales and Scotland. We have funders who can offer special, low-rate lending for projects in London and the South East.

Is Taking Out Mezzanine Finance Risky?

As this type of funding is designed to allow you to maximise the borrowing on your project, you will naturally end up with very high gearing.

When taking out mezzanine finance, you will be personally liable for the debt, whether the loan is made in your personal name or via a limited company. When applications are made in limited company names, the lender will personally tie you to the loan by requiring a personal guarantee.

As such, should you ever default on the loan and the property be repossessed, there is a real chance that the sale price could end up being below the loan amount. This would leave you having to honour your personal guarantee and repay the difference.

What Are the Alternatives to Mezzanine Finance?

There can be vast differences in the maximum loans offered by different lenders and as such, it may be possible to achieve the loan you’re looking for from a single lender. When you ask us to take a look at mezzanine finance for you, we will be happy to compare all the options for you.

Alternatively, if you’re looking to borrow more and are happy to profit share, joint venture development finance is worth considering.

Finally, if you have additional security available, you may be able to offer it as security for the loan to your senior development finance lender. In this case, you may find that the rate offered will be lower than those offered through development finance lenders. The downside to this approach is that the property offered as security will be at risk should you default on the loan.

Read on below to find out more or fill in the form to talk to an expert.

By on March 8, 2020   /   Blog