March 21st, 2018. Tom Rowlands
Could Mezzanine Finance Help You?
Heard the term ‘mezzanine finance’, but not exactly sure what this kind of loan entails? Then this is the blog for you. Here our experienced commercial property finance brokers explain the main uses, who can use mezzanine finance, and the elements that may affect the associated costs.
What is a Mezzanine Loan?
Mezzanine finance is a loan that sits behind the senior debt, usually secured via a second charge.
For a more in-depth explanation visit our Mezzanine Finance product page.
What is Mezzanine Finance Used For?
Mezzanine finance can be used for almost any legal purpose. However, due to its flexibility, it is typically used by property developers who have limited cash resources, want to spread available cash over more than one project, or are seeking a lower equity contribution and a higher return on capital.
Mezzanine finance acts as a hybrid of debt and equity finance, meaning it can act as a ‘top up’ for development projects by leveraging future profits for maximum return.
For example, a project funding breakdown could see a developer put down 15%, a prime lender 65%, and a mezzanine lender 10%.
How Much Does Mezzanine Finance Cost?
The price of mezzanine finance depends on individual case circumstances and will vary depending on the risk involved, the exit, and current market conditions. For example, the cost will be higher if the borrower has a small stake and the lender would be required to provide a large proportion, especially if there is no pre-agreed refinance exit.
Generally, you can expect to pay more for this kind of finance than a standard loan. But, with the help of an experienced property finance broker, there are some great deals to be made.
Who Can Apply for Mezzanine Finance?
Anyone can apply for mezzanine finance. However, you’re more likely to get your loan accepted if your organisation has sustainable operating profits, are in a strong growth position, and have a scalable model with strong margins.
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Article By Tom Rowlands
March 21st, 2018
Tom joined Pure Property Finance in 2017 after a career as a Client Wealth Manager, where he spent just under 3 years advising on financial and tax planning. Tom specialises in bridging finance and property development funding, having completed deals ranging from a simple £30K property purchase through to £2m+ mixed-use developments.See more articles by Tom