Mezzanine Finance
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Mezzanine Finance
A Mezzanine Finance loan is one that will sit after seniority within a capital structure. In most cases, the senior loan would be in place at 55% to 75% GDV, but you may not have sufficient funds from that lender. This is where Madison Carter Finance can help.
Property Development And Mezzanine Finance
Mezzanine Finance can be used by property developers to bridge the gap between the deposit and property development funds that they will receive from their lender in order to cover the costs of their project.
Not only can Mezzanine Finance reduce the amount of deposit required, it can also be used for funding gaps in deposits or to allow developers to reserve their funds for use in future deals or just to get the deal done. Lenders can typically cover as much as 90% of the costs of the project, so the developer only needs to provide 10% themselves.
To obtain Mezzanine Finance, developers have to meet certain lending criteria. They must provide that they have sufficient experience, and a personal guarantee.
Why Choose Madison Carter Finance For My Mezzanine Finance?
Mezzanine Finance represents a form of debt instrument with a higher rate of interest but typically a smaller loan size. So, as an example, if you already have an RBS development facility at a GDV of 55% but need further funding, you may be able to agree with a blue chip lender on an appropriate stretch facility. Topping up using Mezzanine Finance could be commercially more viable. Alternatively, you could approach a lender that is more competitive, but although our rate is a little higher, you will need to pay back a larger loan and, therefore, the total you will need to pay will go up.
Sometimes, Mezzanine Finance is used when only a small amount is required to complete the deal. You may need working capital if all your available equity is taken up by the deal.
Are There Any Alternatives To Using Mezzanine Finance?
There are alternatives to using Mezzanine Finance. It is possible you could obtain the full finance amount you require from your senior lender, either as a high GDV or by stretching your senior loan. As a responsible lender, we always advise that you check possible alternatives first, and we are happy to help you to explore them.
What Are The Benefits Of Mezzanine Financing?
We use Mezzanine Finance here at Madison Carter Finance to fund real estate developments. However, it is also sometimes used for a traditional business loan. We will sit behind your existing first-charge lender, facilitating small amounts of capital so you can complete your deals. In cases where a large amount is required, we may have to discuss it with a partner in order to syndicate your loan.
What Is The Cost Of Mezzanine Finance?
Since Mezzanine Finance will be secured with a second charge, making it riskier for the lender, it will have a higher LTV (Loan-To-Value), making it more expensive when compared with a senior loan.
The rate of interest varies depending on the individual circumstances of the case, typically starting with us at around 18% to 22% PA. Our arrangement fee is usually 2% in with 2% out. Interest rates are determined by taking into account several factors, including market liquidity, equity input, how much finance is required, and property location.
Is It Risky To Take A Mezzanine Loan Out?
There are risks involved with all kinds of business loans. The borrower has 100% liability for their debt. Whether you take out your Mezzanine Loan via your company or in your own name, you are still personally liable, as you must provide your personal guarantee. That means should you default on your loan with your property being repossessed, you may find its sale price is less than your loan amount, leaving you to make the difference up yourself.
What documentation is required for a bridging large loan?
- An up to date credit file
- Passport and driving licence
- Personal Bank statement dated within the last 3 months
For Property Developers & Investors
- CV
- Asset & Liabilities
- Passport
- Driving Licence
- Business Bank statement dated within the last 3 months
- Credit file dated within the last 3 months
- Chart structure
- SPV – If appropriate
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The Financial Conduct Authority (FCA) may regulate your loan. If your loan is regulated we can deal with your application. It must be submitted through an FCA regulated intermediary.