Borrow up to 90% LTV with Mezzanine Finance
Mezzanine Finance is a type of business loan which involves a combination of debt (a loan) and equity (giving up shares in your business).
- Borrow up to 90% LTV
- Funds available in 2 to 4 weeks
- Based on debt and equity
- Borrow for up to 10 years
- Asset-backed lending
- UK, Scotland and Wales
- All credit histories considered
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What is Mezzanine Finance?
Mezzanine finance allows you to borrow money for a property or business investment, using both debt and equity – whereby you are paying interest but also giving the lender a small stake in the project or opportunity.
Based on the Latin word for ‘middle,’ you may also think of a mezzanine as being an extra floor in a room – and that is exactly what it is. It is in the middle of borrowing money and giving up shares to help you get the finance for need. Simply enter your details and requirements in our form below and Octagon Capital will come back to you with a number of competitive rates and terms.
Use our Mezzanine Finance Calculator
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When Would You Use Mezzanine Finance Lenders?
This type of funding has two main purposes:
1. High risk – when the opportunity is maybe considered too high risk for the lender or the borrower cannot afford the loan, they may suggest this type of finance because it means that they also get equity in the business if it takes off. So although it could be a risky investment for the loan provider, the return could be enormous which is why they would prefer to get shares.
2. Top up an existing loan – imagine that a lender has provided a loan for a property development or investment opportunity but the borrower still wants to drawdown more. But if the lender does not want to lend out more, they could take a percentage of potential profits. For instance, they provide 60% of funds in a loan form, 20% as equity and then the customer has to put in a remaining 20% of their money.
It is common for the borrower to be lacking sufficient funds for their project or business. But, this type of loan can give them the necessary capital they need to grow their company.
For a property, the money can be used for bricks and mortar and labour. For management buyouts, it is a based on the existing and potential value of the business and growth based on hiring more staff, completing project and meeting targets. For a high tech startup with huge growth potential, they may need that injection of cash to grow their business and mezzanine funding could be their best option.
The most common examples of using mezzanine finance include:
- Property developments and bridging loans
- Management buyouts
- Funding growing businesses
- Recapitalisation
- Organic expansion
Mezzanine Finance Providers Example
If you want to raise £10 million and you have agreed a loan for £7 million with a standard lender, through a mezzanine loan agreement you might secure another £1.5 million and you will need to put in £1.5 million yourself instead of £3 million. So you are using debt (a loan) and also giving up equity (a share of the profits).
Why Apply For Mezzanine Finance with Octagon Capital?
Octagon Capital is a licensed broker in the UK who can help facilitate mezzanine finance for your company. We have a relationship with the SPF Finance who are based in London and they will help to process your application. We work with a number of mezzanine finance providers in the country and specialise in property development projects.
Loans are available ranging from £50,000 to £25 million and you have the choice of receiving the bank transfer in one lump sum or in stages so that it can be used at different milestones of your business.
- New builds
- Renovations
- Extensions and conversions
- Part builds
- Shops and stores
- Offices
- Residential property
- Commercial property
Our Mezzanine Lenders
What Are The Terms of Mezzanine Finance Lenders?
This type of finance is usually treated as a simple loan for a certain duration e.g 12 months. The loan is either repaid in one lump sum or interest repayments can be deferred.
However, if the customer has not reached their targets by this timeframe or they are unable to pay back their loan, it triggers a clause in the contract so that the loan provider will get equity in the business instead.
For the borrower, this can be a sign of relief that they are not put into a position of debt and they still have the initial funds to grow their business. The only downside is now that they to give up equity in their company to the lender
Mezzanine Finance FAQs
- You must be based in UK, Scotland or Wales
- Must offer up to 20% in equity
- All properties considered including commercial and residential
- All credit histories considered
- Must be a limited company
This will vary from lender-to-lender and range from around 5% to 20% of the overall project costs.
Mezzanine finance can provide an effective source of funds if your project is on the riskier side and has huge growth potential.
It is important to explore all your options including bridging loans, development finance and speaking to private investors.
You can repay in cash or ‘payment-in-kind’ (PIK) interest, as well as through shares in the company or investment.
Mezzanine finance requires you to give up equity in your business or development project and pay interest to the lender. This type of finance is designed for potentially riskier ventures and is appealing to mezzanine finance lenders because they can earn interest but also a shares which could be more valuable. Funding may be for a few months or up to 10 years.
Bridging finance is usually a much shorter-term proposition and is secured against the property. The customer can borrow for up to 24 months and pay monthly interest or have this rolled up until the end of the loan term. The borrower does not have to give up any equity in their business.
Senior debt is the company’s first tier of liabilities and is secured against a property e.g a mortgage or original investment.
If the project or business goes flop, the senior debt (possibly to the bank) would be paid first.
Mezzanine finance would typically be the second form of debt, known as junior debt.
For borrowers, mezzanine finance can pose various risky because you have collateral at risk and are giving away shares in your company.
However, mezzanine finance can also yield much greater returns than other forms of specialist finance when executed correctly.
We are a licensed credit broker in the UK and work with a number of established mezzanine finance lenders in the UK. We have worked on such a range of projects over the years and can advise on the best way forward and how to get the most competitive terms and rates possible.
To get started, simply contact us using the details below and one of our team members will be on hand to provide more information.