Mezzanine finance is a form of top up funding to fill a gap between a developer’s equity and the amount that the Senior lender will provide. This is secured by having a second charge over the property in question, while the initial lender holds a first charge. By taking out mezzanine funding the developer is able to obtain a good return with minimum cash contribution. There are a number of benefits associated with pursuing this route, including:
Allowing capital to be split across several sites, meaning an increase in the number of projects that can be undertaken.
Allowing capital to be ‘freed up’ for the early funding of new sites.
Allowing developers to undertake larger schemes than would be possible with their existing capital.
Eases cash flow to allow developers to remain cash positive for new sites and monthly overheads.
Able to be used as a form of bridging finance.
No fixed criteria on LTV.
HOW OUR FUNDING WORKS
We appreciate that each project is different so we have a flexible approach and offer a variety of funding options.
Here is a typical example of a mezzanine loan
Land price = £500,000
Build cost = £500,000
Total spend = £1,000,000
Sale price = £1,500,000
Bank loan provides 60% of costs at approx 4% interest = £600,000 + £24,000 interest
YTC would provide 30% of costs at 25% interest = £300,000 + £75,000 interest
Developer investment 10% = £100,000
Developer profit = £401,000
Return on Capital = 401%
To find out more about how we could work with you for your project, please get in touch.
Send us a message or call 01732 464 134
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