Mezzanine Finance in Bexley
Bridge the gap between senior debt and your equity contribution. Access up to 90% combined loan-to-cost funding for your Bexley development project with our specialist mezzanine finance solutions.
What Is Mezzanine Finance?
Mezzanine finance is a form of secondary lending that sits between the senior debt (your main development loan) and the developer's own equity contribution in the capital stack. It is secured by way of a second charge over the development site, ranking behind the senior lender's first charge but ahead of the developer's equity.
Because the mezzanine lender takes on a higher level of risk than the senior lender — they are repaid only after the senior facility has been fully redeemed — the cost of mezzanine finance is correspondingly higher. However, for many developers the trade-off is well worth it: mezzanine finance allows you to significantly reduce the amount of personal capital you need to invest in a project.
This is particularly valuable for developers in Bexley who want to take on multiple projects simultaneously, preserve working capital for contingencies, or simply maximise the return on their equity. By leveraging mezzanine finance alongside senior debt, you can access combined funding of up to 90% of total project costs, meaning you may only need to contribute 10–15% of the total cost from your own resources.
Mezzanine lenders assess deals based on the strength of the development appraisal, the experience of the developer, and the overall risk profile of the scheme. A strong gross development value (GDV) margin and a clear exit strategy are essential requirements for securing mezzanine funding.
Key Characteristics
- Second Charge SecuritySecured behind the senior lender, ranking above developer equity in the capital stack.
- Higher Cost, Higher LeverageExpect rates from 1% per month reflecting the increased risk taken by the mezzanine lender.
- Reduced Equity RequirementContribute as little as 10-15% of total project costs from your own capital.
- Intercreditor AgreementA legal agreement between senior and mezzanine lenders governs priority and enforcement.
The Development Capital Stack
Every development project is funded through a combination of debt and equity. Mezzanine finance fills the gap between your senior loan and the equity you contribute, allowing you to maximise leverage.
Your Capital Contribution
Lowest risk position — last to be repaid but retains all upside profit
Second Charge Lending
Medium risk — repaid after senior debt, secured by second charge
First Charge Lending
Lowest risk — first to be repaid, secured by first legal charge
When to Use Mezzanine Finance
Mezzanine finance is not suitable for every project. Here are the scenarios where it makes the most strategic sense for Bexley developers.
When You Want to Reduce Equity
If you have limited personal capital available or want to preserve your cash reserves for multiple projects, mezzanine finance allows you to participate in developments with a much smaller equity contribution. Instead of putting in 30-40% of total costs, you may only need 10-15%.
When Margins Support the Higher Cost
Mezzanine finance is more expensive than senior debt alone, so your development appraisal needs to show sufficient GDV margin to absorb the additional interest and fees. As a general rule, projects with a profit margin of 20% or more on GDV are well suited to mezzanine funding.
When Speed to Site Matters More Than Cost
In competitive markets like Bexley, securing a site quickly can be the difference between winning and losing a deal. Mezzanine finance can help you move faster by reducing the time needed to assemble your equity contribution, allowing you to exchange contracts and get on site sooner.
When You Are Scaling Your Portfolio
Experienced developers often use mezzanine finance as a tool for portfolio growth. By reducing the equity required per project, you can spread your capital across two or three developments simultaneously rather than committing everything to a single scheme. This diversification strategy can significantly accelerate your business growth.
Key Terms for Mezzanine Finance
Understanding the typical terms and parameters will help you assess whether mezzanine finance is the right fit for your development project in Bexley.
Mezzanine Finance vs Stretched Senior
Both options allow you to achieve a higher LTC than standard senior debt alone, but they are structured very differently. Understanding the distinction is critical to choosing the right approach for your Bexley development.
Mezzanine Finance
A mezzanine structure involves two separate lenders: one providing the senior facility (first charge) and another providing the mezzanine facility (second charge). Both lenders conduct independent due diligence, and an intercreditor agreement governs their relationship.
- Two separate lenders and facilities
- Intercreditor agreement required
- Greater flexibility in lender selection
- Can be slower to arrange due to ICA
- Total cost may be lower for the senior portion
- More complex legal structure
Stretched Senior
A stretched senior facility is a single loan from one lender that provides a higher LTC (typically 75–85%) than a standard senior facility. The entire facility is secured by a single first charge, eliminating the need for an intercreditor agreement.
- Single lender and single facility
- No intercreditor agreement needed
- Simpler and faster to arrange
- Blended rate across the whole facility
- May have higher overall cost of capital
- Less flexibility — one lender controls all terms
Which Should You Choose?
The right structure depends on your specific circumstances. If speed and simplicity are paramount, a stretched senior may be preferable. If you want to maximise leverage (up to 90% LTC) or if the blended cost of a mezzanine structure works out cheaper, the two-lender approach could be more advantageous. We analyse both options for every client and present a clear recommendation based on your project's numbers.
The Intercreditor Agreement
The intercreditor agreement (ICA) is one of the most important legal documents in a mezzanine-funded development. It establishes the rules of engagement between the senior and mezzanine lenders, covering everything from repayment priority to enforcement procedures.
The ICA typically addresses the order in which each lender is repaid from the sale proceeds (the “waterfall”), the circumstances under which each lender can enforce their security, standstill periods that prevent the mezzanine lender from taking enforcement action while the senior lender considers its options, and consent requirements for material changes to the development plan.
Negotiating the intercreditor agreement can be one of the most time-consuming aspects of arranging a mezzanine facility. Each lender has their own preferred form of ICA, and reconciling the two positions requires experienced legal counsel on all sides. This is an area where having a specialist broker can save considerable time and cost.
How We Manage the Process
- 01Lender SelectionWe identify senior and mezzanine lenders with compatible intercreditor terms, reducing negotiation time from the outset.
- 02Term Sheet AlignmentBefore instructing solicitors, we ensure the key commercial terms are agreed between both lenders to avoid costly legal disputes.
- 03Legal CoordinationWe coordinate between your solicitor, the senior lender's solicitor, and the mezzanine lender's solicitor to keep the ICA negotiation on track.
- 04Simultaneous CompletionWe manage the drawdown process to ensure both facilities complete simultaneously, so you can access funds and get on site without delay.
Mezzanine Finance FAQs
Answers to the most common questions we receive from Bexley developers about mezzanine finance.
Ready to Explore Mezzanine Finance?
Whether you are looking to reduce your equity contribution, scale your development portfolio, or simply explore your options, our specialist team is here to help. Share your project details and we will provide a tailored mezzanine finance proposal within 24 hours.
- Free, no-obligation consultation
- Access to 50+ mezzanine lenders
- Combined LTC up to 90%
- Expert intercreditor management
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