Mezzanine Finance

Up to 100% funding for property developers and investors

Property developers frequently find themselves in the position of having a great opportunity but not enough cash to bridge the gap between their own funds and the level of finance offered by their main lender. This is where mezzanine finance steps in, taking care of the shortfall and covering up to 100% of the land and building costs.

Mezzanine finance can be described as top-up funding, where in effect a second mortgage is given towards a project over and above the first loan, and is open to all kinds of property development.

When is mezzanine finance suitable?

• When you do not have the 20-30% deposit money needed to start a project
• When your project is worth over £1,000,000 GDV
• When you need to purchase your next project before selling the last one
• When you require flexibility in the way you repay a lender

If desired then mezzanine finance arrangements can involve an element of equity, meaning that in addition to lenders’ fees and interest, the finance provider also receives a share of the profit when the developer sells the units.

Property investors can also take advantage of this type of funding. Rather than taking further advances from a buy to let lender, mezzanine finance can be used as a second charge on their investment properties. Many investors choose this type of funding when looking at below market value purchases as the mezzanine loan fill the gap between the Buy to Let mortgage and the purchase price.

As this is the second loan on the property or land there is a greater risk to the mezzanine lender. Higher levels of interest will be charged to compensate this, starting from a few percent above the Bank of England Base Rate.

Arranging and securing mezzanine finance can be a complicated process and a strong case needs to be presented to the lender. In these instances it is vital that you use the services of a broker experienced in arranging mezzanine finance.

Whilst mezzanine finance is most commonly used for property, it is also often called upon for purchasing businesses, especially for leveraged buy-outs and businesses in their early stages. The lender can take stock in the company and exchange this once the business has grown to a pre-agreed level. The debt can be rolled-up to be repaid at the end, so the loan does not have a negative effect on cash flow.

In the current climate, developers and investors are having to rethink previous strategies. By utilising our extensive experience and knowledge of the financial markets, and products such as mezzanine finance, we are able to come up with options that enable a developer to purchase a property or site in a different way.

Call our dedicated mezzanine finance team now on 0845 230 3 230 to discuss your options further or fill in our online enquiry form and we’ll be in touch.