MEZZANINE FUNDING

What is Mezzanine funding?

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