Mezzanine Finance
Mezzanine finance refers to subordinated debt or preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common shares. Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock.
Here is an example of mezzanine finance in use:
A property developer looking to get a project off the ground may tap sources of funds.
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A traditional lender, who will take out a 1st mortgage o the property. Generally, a bank will manage their risks by lending up to a certain amount only, eg 50%.
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A mezzanine investor may then provide the next 45% of the money and gets a second mortgage.
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The third and final level of funds may be a 5% contribution by the property developer.
Given that mezzanine lending presents a higher risk to the lender (as they are second in order of payouts due to the second mortgage), interest rates are higher.
CapStack can help connect you to the right lenders who can provide the right mezzanine finance to help developers of all sizes get their projects off the ground.
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What is Mezzanine Finance
Mezzanine finance is a hybrid funding method that sits between senior debt and equity in a company's capital structure. It often takes the form of subordinated debt or preferred equity, giving the lender a claim on the business’s assets that is only senior to that of common shareholders. In simpler terms, it's a way for businesses—especially property developers—to access extra capital after securing a traditional loan but before giving up equity.
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Mezzanine loans are typically unsecured and subordinated, meaning they come after senior debts in the repayment hierarchy. Because of this added risk, mezzanine finance carries a higher interest rate. Still, for many developers in Melbourne and across Australia, it offers a valuable financial tool to complete their funding stack.
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How Does Mezzanine Finance Work?
To better understand mezzanine finance in Melbourne, imagine a property developer looking to launch a new residential or commercial project. The developer approaches a bank for a senior loan, which is secured by a first mortgage over the property. However, banks often only fund up to a conservative percentage of the project cost—typically around 50%.
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To bridge the gap between the bank loan and the total project cost, the developer seeks mezzanine lenders in Melbourne. A mezzanine lender may provide up to 45% of the required funding. This financing is secured by a second mortgage and typically carries a higher interest rate because it is riskier than the bank loan. The remaining 5% might be the developer’s own equity contribution.
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This layered approach allows developers to fund projects without immediately giving up equity, making mezzanine loans in Melbourne an attractive option for those seeking flexibility and speed in project delivery.
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Why Choose Mezzanine Finance
For developers in Australia, especially in Melbourne’s booming property sector, mezzanine finance is more than just a last-resort funding option—it’s a strategic financial solution. It enables greater leverage, can be secured more quickly than traditional financing, and gives developers the opportunity to retain control of their projects.
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Moreover, because mezzanine financing can be customized to suit each project's specific requirements, it’s ideal for developers who are confident in the future value of their developments but need assistance to get their projects started.
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CapStack specializes in helping developers connect with trusted mezzanine lenders in Melbourne who understand the local property landscape. Whether you’re building residential apartments, commercial properties, or mixed-use developments, we can help you access the right mezzanine loan in Melbourne to complete your capital stack effectively and efficiently.
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Partnering with the Right Lenders
Navigating the world of mezzanine finance in Melbourne requires not just financial expertise but also strong relationships with a network of lenders who can deliver timely, tailored funding solutions. CapStack takes the guesswork out of this process by aligning you with reputable mezzanine lenders in Melbourne who can help your project move forward with confidence.
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From understanding your project’s feasibility to negotiating favorable terms, CapStack ensures that you’re supported every step of the way. If you’re a developer in Melbourne or anywhere across Australia, now is the time to explore how mezzanine loans in Melbourne can unlock new growth opportunities for your business.
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