{"id":4467,"date":"2021-08-25T09:04:20","date_gmt":"2021-08-25T08:04:20","guid":{"rendered":"https:\/\/octagoncapital.co.uk\/?p=4467"},"modified":"2023-07-05T14:08:22","modified_gmt":"2023-07-05T13:08:22","slug":"how-is-a-bridging-loan-different-to-mezzanine-finance","status":"publish","type":"post","link":"https:\/\/octagoncapital.co.uk\/guides\/how-is-a-bridging-loan-different-to-mezzanine-finance\/","title":{"rendered":"How Is a Bridging Loan Different to Mezzanine Finance?"},"content":{"rendered":"

Mezzanine finance requires borrowers to give up equity in their development project or business, whereas bridging finance is secured against property, and is used on a much shorter term. Both types of finance must also pay interest.<\/p>\n

Both mezzanine and bridging loans can be a great to help borrowers in certain situations, carrying different levels of risk, eligibility criteria, repayment plans and more. But how precisely do they differ? And which one is best suited to certain situations and circumstances?<\/p>\n

Here, Octagon Capital explores the differences between mezzanine finance and bridging loans, and which one works best in different situations and circumstances.<\/p>\n

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Mezzanine Finance vs Bridging Loan: Which One Is Right for Me?<\/strong><\/h2>\n

Mezzanine finance is used more long-term than a bridging loan, requiring the borrower to give up equity either in their development project or business, while a bridging loan is used on a much shorter-term basis, securing a property against the loan while repaying after a few months (the maximum length of time you can take out a bridging loan with Octagon Capital being 24 months).<\/p>\n

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Mezzanine finance can appeal to lenders as they not only get paid interest back by the borrower, but also get shares, which could potentially be more valuable than a standard repayment by the borrower. Mezzanine finance lenders<\/a> has been designed to accommodate for ventures that are potentially riskier, with funding available for a range of borrowing periods \u2013 from a few months to 10 years.<\/p>\n

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Mezzanine vs Bridging Loan: Uses<\/strong><\/h3>\n

A bridging loan in London<\/a> can be used for a variety of different purposes, but essentially helps to \u201cbridge\u201d the financial gap for borrower\u2019s between the purchase of a property and the sale or influx of money from somewhere else.<\/p>\n

In comparison, a mezzanine loan is used when the borrower can\u2019t afford the loan, or the opportunity is considered too high of a risk for other types of lending. Mezzanine finance can be used to top up an existing loan, to help fund a business project or to help grow a company. While it\u2019s high-risk, the lender could potentially reap the rewards of enormous returns via the shares they\u2019re given.<\/p>\n

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Mezzanine vs Bridging Loan: <\/strong>Eligibility Criteria<\/strong><\/h3>\n

As mezzanine finance and bridging finance operate differently, the eligibility criteria for each type of loan will also differ greatly.<\/p>\n

To obtain mezzanine finance through Octagon Capital, applicants will have to meet the following criteria:<\/p>\n