Mezzanine finance
Mezzanine finance is flexible, higher-risk funding that sits between senior debt and equity. It can help experienced UK businesses and property developers increase leverage for acquisitions, growth or development without giving up full ownership.
Last updated: October 2025, edited by Joe Morley, reviewed by Vivek Seda
What is mezzanine finance and how it works
Key takeaways
Mezzanine finance “tops up” what senior debt won’t fund, reducing the equity you need while preserving control.
Position in stack: subordinated to senior debt, above equity
Use cases: property development, acquisitions (MBO/MBI), growth projects
Security: often second charge/debenture; PGs may apply
Repayment: bullet/balloon at exit or refinance; may include PIK interest
Cost: higher than senior debt; multiple fees and covenants
What is mezzanine finance?
Mezzanine is a hybrid of debt and equity. Typically structured as subordinated debt with a second charge or unsecured debenture, it may include cash interest, PIK (payment-in-kind) interest and sometimes warrants or a small equity kicker. In return for higher risk, providers seek higher returns than senior lenders.
With Funding Options by Tide, you submit one application and we match your case against 80+ UK lenders and specialist providers to present feasible options.
How mezzanine works in the capital stack
Equity (sponsor contribution)
Mezzanine (subordinated; increases total leverage)
Senior debt (first-charge lender)
Example (illustrative): Senior lender funds 65% of a project; mezzanine adds 15%; you contribute 20% equity. Exact splits depend on the deal, sector, valuation and risk appetite.
Common use cases
Property development
boost Loan-to-Cost/Loan-to-GDV to deliver schemes with less equity
MBO/MBI & acquisitions
bridge the gap between purchase price and senior facility
Growth capex & roll-outs
fund multi-site expansion, equipment, or major projects
Costs and fees (what to expect)
Mezzanine costs are higher than senior debt. Packages may include:
Cash interest and/or PIK interest (rolled up to exit)
Arrangement/commitment fees, non-utilisation, monitoring, legal and exit fees
Equity participation/warrants in some structures
Important: total cost varies substantially by project risk, sector, security and exit plan. Compare multiple offers before deciding. This page provides general information, not financial advice.
Typical amounts and terms
Amounts: generally £250k–£10m+ (case-dependent)
Terms: 12–60 months; often interest-only with a balloon at exit/refi
Security: second charge over property/shares or debenture over company assets
Docs & controls: intercreditor deed with senior lender; covenants and reporting
Pros & cons
Pros
Increases leverage; reduces equity required
Preserves control versus raising pure equity
Can unlock projects/acquisitions senior lenders won’t fully fund
Cons
Higher cost than senior; multiple fees/covenants
Subordination risk and tighter monitoring
May include PGs or equity kicker
Alternatives to Mezzanine finance
Secured business loans
Bridging loans
If you want to acquire the business and then either sell it within a year or two, or secure further funding to cover the acquisition after the fact, a bridging loan may be for you. A bridging loan is a type of short term business loan designed to bridge gaps between funding. For example, if you want a quick loan to buy an existing business but plan to refinance with a longer-term option down the line. Essentially, you get a bridging loan, buy the company, and then pay off the loan in a year or so once you’ve secured further financing.
Property development
boost Loan-to-Cost/Loan-to-GDV to deliver schemes with less equity
Commercial property
A commercial mortgage (also known as a business mortgage) is among the most common types of business finance for commercial property and land purchases.
Equity investment
Equity investment raises funds from investors in exchange for shares
Asset finance
Asset finance is used to fund vehicles, machinery and equipment.
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Representative example*
• 9.7% APR Representative based on a loan of £50,000 repayable over 24 months.
• Monthly repayment of £2,291.56. The total amount payable is £54,997.44
*Some lenders may apply fees during the application process, please note that these are set and provided by these entities.
Annual Percentage Rates
Rates from 8.2% APR
Repayment period
1 month to 30 years terms
Learn more about mezzanine financing
Is mezzanine finance debt or equity?
It’s hybrid: legally debt but with equity-like risk/return features (e.g., PIK or warrants).
Do I need security or a personal guarantee?
Usually a second charge or a company debenture; PGs may be requested, case-by-case.
How is mezzanine repaid?
Typically via sale, refinance into a term facility, or on completion of a property scheme.
How fast can I complete?
Often weeks rather than days due to valuation, diligence and intercreditor negotiations.
What is an intercreditor deed?
A legal agreement that sets ranking, remedies and cash-flow waterfalls between senior and mezzanine lenders.
Is mezzanine suitable for startups?
Generally no unless there’s collateral and strong sponsor backing—providers expect experience and a clear exit.
Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.
It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.
Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.
Eligibility and documents
Eligibility (what providers look for)
Experienced management/sponsor and a credible exit or refinance path
Viable development appraisals or acquisition business case
Sensible equity contribution and alignment of interests
Senior lender support (or clear plan to secure it)
Documents (typical)
Company information, shareholder structure, and director IDs
Financials: recent bank statements, filed accounts or management info
For property: appraisal, cost plan, planning, valuations, build contract
For acquisitions: IM, heads of terms, forecast model, DD materials
Details of security, covenants and proposed intercreditor terms
Joe Morley
Business Finance Lead
Joe has been helping UK businesses secure the funding they need since 2015. Over the years, he’s supported hundreds of SMEs in accessing millions of pounds for everything from purchasing essential assets to unlocking working capital for day-to-day operations. As Head of Sales at Funding Options, Joe leads a large team of expert Business Finance Specialists dedicated to finding the right solution for every customer. His goal is simple - to make securing finance straightforward, stress free, and tailored to each business’s needs.