What is Mezzanine Finance and how can I get it?

Mezzanine finance is additional debt to your senior (bank) debt to help you complete a project or acquisition. It is utilised in property development, commercial property and business debt but here we will focus on property development.

Mezzanine finance will rank behind your senior lender which in simple terms means that the mezzanine financier would hold a second mortgage whilst your bank (or similar) will have a first mortgage. In practice this means that the mezzanine financier is repaid AFTER the bank, but before equity.

Mezzanine finance therefore sits between the senior financier and the equity and hence is the ‘mezzanine floor’.

Because mezzanine finance ranks after the senior funder it holds additional risk and therefore will cost more than your senior debt. The cost may vary but typically we see a total cost of this debt ranging from 15% - 25%.

This is normally broken up between an interest rate and an establishment fee. (say 15% interest rate + a 3% fee). Unlike senior debt in property development there isn’t often a line fee attached as the full amount of Mezzanine debt is typically drawn on day 1 and therefore it would be irrelevant.