What is Mezzanine Funding?

Mezzanine funding is a type of financing that sits between senior debt and equity. Often used by property developers, it typically takes the form of a loan secured against the company’s assets but is considered secondary to the senior debt held by banks and other lenders.  

What are the advantages of Mezzanine Funding?

  • Higher return on capital – the developers return on their own capital invested is substantially improved. 
  • Lower cost – Mezzanine financing is less expensive than equity finance because it carries a lower risk. This makes it an attractive option for developers who need to raise funds but want to minimise costs without sharing profits. 
  • Increased leverage – Mezzanine funding allows developers to increase their leverage, which means they can borrow more money than they would with senior debt alone. This is useful in situations where the developer needs additional funds to complete larger and/or additional projects. 
  • Flexible repayment terms – Mezzanine funding typically has more flexible repayment terms than senior debt, which can be beneficial for developers who may need to adjust their repayment schedule to accommodate project delays or unexpected costs. 
  • Quick funding – Mezzanine financing can be arranged more quickly than equity financing, which can be useful when a developer needs funds swiftly to take advantage of an opportunity or to meet a deadline. 
  • No dilution of equity – Unlike equity financing, mezzanine funding does not require the developer to give up ownership control of their project. 

Overall, mezzanine funding is a useful financing tool for developers who want to improve their return on capital and balance their need for funding with their desire to minimise costs and maintain control of their project. 

If mezzanine funding is of interest to your next project, get in touch with James or Jonathan to find out how we can help.  Call 01732 464 134 or email  info@yellowtreecapital.co.uk

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