What is a mezzanine finance for dummies?

Mezzanine finance is a type of loan that helps fill a funding gap in a property development or business deal, when you don’t have quite enough money and your main lender won’t give you any more. Think of it like a top-up loan that sits between your main mortgage (senior debt) and your own cash or equity.

Imagine you’re building a block of flats. The total cost is £1 million. A bank agrees to lend you £700,000 (70%). You’ve got £100,000 saved, but you’re still short £200,000. That’s where mezzanine funding comes in, it gives you that missing piece without needing to sell a share of the project or bring in a partner.

Key Points

It fills the gap between what the bank will lend and what you need.

It’s more expensive than a regular loan, because it’s riskier for the lender (you pay higher interest). It’s flexible, you often don’t pay anything until the project finishes (interest is “rolled up”). It works well when you’ve already got a project underway and just need extra funds to finish or expand it.

Common Uses:

• For property development that’s gone over budget
• When you get planning permission for extra units mid-project
• If you want to borrow up to 95% of total build costs (LTC)
• To avoid bringing in investors or giving up equity