Mezzanine Loan Finance
- Mezzanine loan facilities ranging from £50k up to £10m
- Up to 80% of GDP as a second charge mezzanine loan
- Mezzanine loan facilities up to 90% loan to cost on a net basis
- Funding from 14% per annum
- Mezzanine loan interest rates are non-compounding making a huge difference in cost
- Reduce the equity contribution to 5 – 10% of costs
Mezzanine loan finance provides a top-up layer of funding, sitting above the senior debt provider but under the developer’s equity. Typically this funding is secured by a second charge and allows for the loan to cost to be increased thereby providing debt funding facilities up to a 90% net loan to costs.
It allows developers to de-risk their equity by minimising the cash required to be invested in any one project meaning it can instead be spread among several. This will ultimately provide a greater return.
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Typical Criteria
- Full planning needs to be granted
- Project terms between 3 months and 36 months
- Second charges must be available over the project
- GDV’s of £500k plus
- Mezzanine loan requirements from £50k to £10m
- Projects throughout the UK
- Strong track record and experience required
Example Facility
Mezzanine loan finance is a popular option for developers to decrease their equity contribution to a project. It is used in conjunction with a senior debt facility and is typically secured by a second charge over the project.
- This example demonstrates a project with an £8m build cost and a £10m GDV
- Senior debt provides for £5.2m – 65% of build costs and 48% of GDV
- Mezzanine funding increases the lend by £2m – an additional 25% of build costs
- The total debt facility increases to £7.2m – 90% of project costs
- The effect is a reduction in the developer’s contribution.
Summary Points
- Funding is available to most developers but a strong track record is preferred
- Mezzanine loan facilities can leverage the project thereby minimising the developer’s contribution
- Interest rates are from 14% per annum
- Interest rates and are non-compounding which dramatically decreases the overall cost
- Loan facilities are available from £50k to £10m
- Terms can be between 3 months and 36 months
- Loans are available for a multitude of developments
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