Mezzanine lenders: who provides top-up development and growth debt

A mezzanine lender lends behind another lender. In property development, the senior lender takes a first charge and lends a share of the costs; the mezzanine lender takes a second charge and lends some of the remainder; the developer puts in the rest as equity. In a business, mezzanine debt sits behind the bank's senior loan and ahead of the shareholders.

Because a mezzanine lender is repaid only after the senior lender, it carries more risk and charges more. Our guide to mezzanine finance explains the structure in full. In short, it is a costlier layer of debt that reduces the cash the owner or developer must find. This page is about who provides it.

The order matters most if something goes wrong. GOV.UK's technical guidance for official receivers says that, as a general rule, an earlier charge ranks ahead of a later one, and that the borrower and chargeholders can change that order with a deed of priority. A secured creditor whose sale proceeds fall short becomes an unsecured creditor for the shortfall.

Both get you to higher leverage. Mezzanine does it with two lenders and two charges; stretch senior does it with one lender lending further up the cost of the scheme on a first charge. The illustration shows how the same scheme might be funded each way.

Stretch senior is usually simpler: one valuation, one set of legal documents and one monitoring surveyor. Mezzanine can reach further when a senior lender will not stretch, or let you keep a senior lender you already have. Our page on loan-to-value explains how lenders measure leverage against value and against cost.

• Whether they lend behind someone else. Many development lenders take only a first charge. Check the lender will take a second charge and work with your senior lender.
• Loan-to-cost and loan-to-GDV caps. These decide how much the combined debt can reach.
• Scheme size and type. Published ranges run from small residential schemes to multi-million commercial developments.
• Experience required. Some lenders consider first-time developers; others ask for a track record.
• Interest and fees. Mezzanine is priced above senior debt, and some lenders also take a share of profit. None of the lenders below publish their pricing.
• Intercreditor terms. What the mezzanine lender can do if the senior lender enforces, and what consents each needs.

The tables are built from each lender's Capzy profile, which records only what the lender publishes itself. Lenders are listed alphabetically. We do not rank or rate them.

Colenko lists mezzanine and stretch senior among the forms of its development finance, alongside development exit and land bridge. Its development finance page describes loans of £300,000 to £2m for up to 24 months, on a first charge, at up to 90% loan-to-cost and 70% of gross development value, for small residential schemes in England and Wales. It does not publish separate terms for its mezzanine and stretch senior products, so ask Colenko or your broker.

Goldentree Financial Services publishes development loans of £100,000 to £10m for up to 24 months, at up to 90% loan-to-cost, with up to 70% of GDV on residential and 75% on commercial schemes.

Lendhub publishes development loans of £500,000 to £7.5m for 6 to 24 months, at up to 90% loan-to-cost and 70% of GDV, and says it can lend on projects already underway.

PMJ Capital publishes ground-up development loans of up to £5m, at up to 85% of cost and 65% of GDV. It states that it writes unregulated loans only.

Other development and bridging lenders are in our lender directory.

For large housing schemes, the National Housing Bank says on GOV.UK that its structured real estate finance can support large, complex and capital-intensive development projects with senior and mezzanine lending. It works with housebuilders, infrastructure developers, land promoters and other lenders, and covers private housing for sale, build to rent and later living.

For trading businesses, mezzanine debt is most often used to fund a management buyout or an acquisition where the senior bank will not lend the whole price. Providers include debt funds and private credit firms, and terms are negotiated deal by deal. Venture debt plays a similar role for venture-backed companies without the profits a senior lender needs.

When two lenders hold security over the same property or business, they sign an intercreditor or priority deed that sets out who ranks first and what each can do. Expect it to cover:

• The order in which the lenders are repaid from a sale or refinance.
• Whether the mezzanine lender can be paid interest while the senior loan is outstanding.
• What happens if the borrower defaults, and how long the mezzanine lender must wait before it can act.
• Whether the mezzanine lender can buy out the senior loan to take control.
• Which changes to the senior loan need the mezzanine lender's consent.

A deed of priority can change the normal order, so read it with your solicitor. Our guide to debentures explains fixed and floating charges.

None of the lenders on this page publishes mezzanine pricing, and returns are agreed deal by deal. What is certain is the ranking: the mezzanine lender is repaid after the senior lender, so it charges more, and on a development it often adds fees on arrival and exit. Ask for the total cost of both layers together in pounds, and test it against your appraisal if sales are slow or costs rise.

• Development finance from a single lender at a higher loan-to-cost.
• A joint venture, where an equity partner funds part of the costs for a share of the profit.
• Bridging loans to buy a site before development finance is in place.
• More of your own equity, or a smaller first phase.

Capzy is a credit broker, paid by the lender, and introduces property and business borrowers to lenders whose criteria fit. You can check your eligibility with a soft search that does not affect your credit score. Any offer is subject to status and lender criteria, and Capzy does not give legal or financial advice.