Mezzanine Finance

Mezzanine finance is an exciting product which can provide property developers and fast-growing businesses with crucial extra funding that might not otherwise be available to them.

Using mezzanine finance, companies are often able to borrow larger amounts than would ordinarily be possible with a regular property financing loan. This allows funding to be secured for higher risk ventures and can also allow projects to go ahead in cases where general credit availability is restricted.

How does it work?

Mezzanine finance deals are essentially a hybrid of traditional debt financing and equity schemes. As opposed to mortgage debt, which is placed on the property or development in question, mezzanine finance uses the stock of the development company itself as collateral.

Although mezzanine loans use company stock as collateral they are not equity investments; the lender does not take any ownership of your company and is granted no stockholding. Instead, the lender is granted a warrant that will give them a return at the end of the agreed loan period or in the event of default.

It is repayable after normal debt but takes precedence over equity in the event of the company going into administration.

Advantages

The main advantage of mezzanine finance is that it allows access to credit that would not normally be considered for lending under ordinary commercial property loan agreements.

Another benefit is that, because equity is not being given up to a venture capitalist, full project control and a higher percentage of profits from the development can usually be retained. However, depending on the terms of the agreement, the loan provider may be entitled to a share of the benefits once the project reaches fruition.

As mezzanine loans are paid back in a one-off payment rather than as monthly payments over a period of years they are also excellent for cash flow, taking the strain off company outgoings.

The structure of different mezzanine finance offers does vary; to discuss your interest and for impartial advice contact us now.