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Equity / Mezzanine Finance

Mezzanine finance is a low-ranking mortgage, usually provided to a property developer to help fund a project.

It is high-cost funding for the developer because it ranks behind a first mortgage of the property, and usually ranks behind a second mortgage, often it is a third or even fourth mortgage.

This is also used by developers who obtain first tier funding from the bank but need some additional equity / mezzanine finance in order for their project to proceed.

The rationale for this type of lending is that it is often short term, for enough time to complete and sell the development, and therefore even though the percent interest cost is high, the time-risk is short, and the dollar interest cost is in proportion to the development.

Specifications*:

  • Minimum Loan: $100,000
  • Maximum Loan: $10,000,000
  • Term: up to 6 months
  • Floating interest rates
  • Interest only

Costs*: (these are industry standards)

  • Interest Rates:
    • range from 13% to 19.5%
  • Lender Fees: range from 2% to 4%
  • Legal Costs: vary upon financier and your solicitor

The exact interest rate depends on the market conditions, strength of the securities and the credit risk associated with the application and the applicant.

 
 
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    * All of the above are subject to the property, business location and normal lending criteria and do vary depending on the particular lender.        
   

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