Here at Quantum Finance Australia, finding the best financing options available to help meet our client’s needs is the driving force behind our business. For this reason, we look at numerous options when facilitating your funding.
Our clients are generally aware of most of the existing financing options. However, there are some, less common choices that are often best able to suit our customer’s needs. One of these funding alternatives that may be unfamiliar to some of our clients is mezzanine funding.
What is Mezzanine Funding?
The short answer is that mezzanine debt is a cash flow opportunity we offer to our clients who need a quick loan but experience difficulties with traditional funding sources. It is set up as a secondary form of debt and is also known as junior or subordinated debt.
At Quantum Finance Australia, we frequently facilitate mezzanine funding as a means for property developers to get the necessary capital to complete a project. When larger lending corporations limit the amount of money they will approve for a specific development; mezzanine financing is perfect to fill gaps in funding.
In essence, the subordinated debt fits between the initial loan and the client’s equity. The primary loan will always take precedence over the mezzanine loan, and the initial lender will recoup their debt first.
Mezzanine financing can help to extend the debt past the regular Loan to Value Ratio (LVR) which is an option difficult to find with many traditional lenders. Our private sources allow flexibility not seen elsewhere. The amount typically allowed is greater than the 65-75 per cent of the project’s Total Development Cost or TDC. Some lenders will advance as much as 90 per cent of the TDC in a mezzanine loan. This requires the borrower to present 10 per cent of the funds in the form of project equity, or risk capital. Additionally, the borrower must reduce as much risk as possible.
What are ways a developer can show the project risk is minimal?
- Presales in the development
- Contracted construction costings
- Approval of senior debt
How is a Mezzanine Loan different from a Traditional Bridging
There are some in the financial world comparing mezzanine funding to a bridging loan. However, the more accurate comparison would be calling the mezzanine loan a hybridisation of a traditional bridging loan.
While the two types of loan are similar, bridging loans and mezzanine loans differ because:
Length of Loan Terms – Bridging loans typically work in the very short term. Often the span of a bridging loan is measured in weeks or months. Mezzanine loans can typically span up to 1 year to 18 months.
How can Mezzanine Financing Benefit my Development Project?
- You will hold on to most (or possibly all) of the control of your development
- The option of a flexible amortisation schedule
- Access to capital quicker
Why Choose Quantum Finance Australia for Mezzanine Funding?
- We have a strong network of financial backers ready to provide funds to our clients.
- Our team have extensive experience in sourcing mezzanine loans.
- We can demonstrate our enduring history of offering flexible and timely financial solutions
- Clients are not just transaction numbers to us. We listen to your goals and facilitate your financing to meet them.
Mezzanine funding can be the solution you are looking for to open opportunities for growth and future successes.
Talk with one of our representatives and learn how a mezzanine loan can help you.