What is mezzanine finance?
Mezzanine finance is borrowing that sits between the senior debt and the equity in a deal: the "mezzanine" is the floor between two others. The senior lender holds the first charge and is repaid first; the mezzanine lender holds a second charge, or no charge at all, and is repaid after the senior lender but before the owners see anything. Because it is repaid later and secured less, it carries a higher return for the lender, often part interest and part a share in the outcome.
In UK commercial finance it appears most often on property development, where a senior lender funds a stated percentage of the cost and a mezzanine lender funds the next slice so that the developer’s own cash goes further, and on acquisitions and buyouts, where it fills the gap between the senior debt the target’s cash flow supports and the price. We have access to a range of UK commercial finance lenders through our principal, White Rose Finance Group Limited. Each lender publishes its own terms and makes its own decision.
The capital stack
Picture a deal as layers, paid out from the top down when the money comes in and bearing losses from the bottom up when it does not. At the top is the senior debt: the largest layer, the first charge, the lowest return. Beneath it the mezzanine: a smaller layer, a second charge or an intercreditor agreement, a higher return. At the bottom the equity: the owner’s own money, no fixed return, the first to absorb a loss and the last to be paid. The proportion of each layer in a given deal is set by what the senior lender will advance, what the mezzanine lender will advance behind it, and what the borrower can put in.
How mezzanine is secured and priced
On a development, the mezzanine lender commonly takes a second legal charge over the site behind the senior lender’s first charge, with an intercreditor or deed of priority between the two lenders setting out who is paid first, who can enforce and when. On a corporate deal it may take a second-ranking debenture, a charge over the shares, or no security beyond a subordination agreement. The return is a rate of interest, usually rolled up and paid at the exit rather than serviced monthly, sometimes with an arrangement fee, an exit fee or a share of the profit on top. Each lender publishes its own structure and pricing; we show what each lender provides so you can compare it, and no rate appears on this page.
Mezzanine on a development
A senior development lender funds up to a published percentage of the total cost or of the gross development value, whichever its criteria cap first, and releases the money in stages against the build. A mezzanine lender funds a further slice above that, so that the developer’s equity requirement falls. Both are repaid from the sale or refinance of the finished scheme, senior first. The development finance page explains the senior facility and how drawdowns work; the loan to value answer explains the ratios the lenders test.
Mezzanine on an acquisition
A buyer funds a purchase from senior term debt sized on the target’s cash flow, a vendor loan note where the seller agrees one, the buyer’s own equity and, where there is still a gap, a mezzanine layer. The mezzanine lender ranks behind the senior lender and usually ahead of the vendor note and the equity, and is repaid from the cash flow of the enlarged business after the senior debt is serviced. The acquisition finance and management buyout pages set out the whole structure.
What a mezzanine lender asks for
Everything the senior lender asked for, plus the senior lender’s terms, because the mezzanine lender is underwriting the senior facility as well as the deal. On a development: the appraisal, the planning consent, the build contract, the cost plan, the senior facility agreement and the sales or letting evidence. On an acquisition: the target’s accounts, the senior term sheet, the structure and the equity. The two lenders’ solicitors then agree the intercreditor terms, which is the part of a mezzanine deal that takes the longest.
For property-secured lending we work with UK limited companies and LLPs only, for business and commercial purposes. Enquiring does not affect your credit score. If you apply to a lender, it runs its own credit search, which may be recorded on your file. We arrange finance only once a business has traded for 3 months, for amounts from £10,000.
Frequently asked questions
Is mezzanine finance a loan or equity?
A loan, with features of equity. It is repayable with interest, which makes it debt, but it ranks behind the senior lender and may carry a share of the profit, which gives it an equity-like return and an equity-like risk.
Why not borrow more from the senior lender instead?
Because the senior lender publishes a maximum it will advance against the cost, the value or the cash flow, and will not go beyond it. Mezzanine exists to fund the slice above that limit at a price that reflects the extra risk. Which structure a business uses is its own decision, made on the figures each lender provides.
Does the senior lender have to agree?
Yes. The senior facility almost always forbids further charges without consent, and the intercreditor agreement between the two lenders is a condition of both facilities.
Is mezzanine finance regulated?
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. If you have a complaint, our complaints page explains how it is handled. We do not arrange regulated mortgage contracts, including properties for your own use.
How is CapExpand paid?
We will receive commission from lenders. On some cases we also charge a fee, which we set out in writing and agree with you before you proceed.
More funding questions answered
- What is hire purchase?A business pays for an asset in instalments and owns it after the last payment and the option fee: who owns what and when, VAT and capital allowances.
- What is working capital?Current assets less current liabilities: the working capital cycle in days, how to read the figure from the accounts, and where finance fits.
- What is a term loan?A fixed sum repaid with interest in instalments over an agreed period: the parts of a term loan, amortisation, covenants and events of default.
- What is an arrangement fee?The one-off charge a lender makes for setting up a facility, deducted, paid or added to the loan, and the other fees that sit beside it.
- What is an early repayment charge?The sum a lender charges if a loan is repaid before a date in the agreement, how it is calculated, and how it differs from an exit fee and a minimum interest period.
- What is a director’s loan?Money passing between a company and a director outside salary, dividends and expenses, in either direction: what the Companies Act requires and how a lender reads the balance.
The slice above the senior debt
The scheme or the target, the senior terms you have and the gap are enough for us to check the case against lenders’ published criteria before anything is sent anywhere.
Sources
Checked 26 October 2026. This page explains where mezzanine finance sits in a deal; each lender publishes its own structure, pricing and criteria, and nothing on this page is a quote.
Important information
Think carefully before borrowing. Property or other assets offered as security may be at risk if you cannot keep up repayments.
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. We do not provide financial advice.