Mezzanine financing is a form of debt capital that can be used to finance commercial real estate investments. It provides an alternative source of funding for property investors who are not able to secure traditional bank loans or other forms of conventional financing. Mezzanine financing has become increasingly popular in recent years as it offers the potential for higher returns than traditional methods and can help bridge the gap between equity and debt when there isn’t enough capital available from either source alone.
An Overview of Mezzanine Financing
Mezzanine financing typically involves a loan secured on the value of a property, but with a repayment structure that is more like equity than debt. The lender will usually require some form of security, such as a second mortgage or a lien on the property, and if the borrower defaults on the loan then the lender can take possession of the property. A mezzanine loan can provide a significant amount of capital for the borrower and often offers high returns for the lender, which is why it has become an attractive option for both sides.
Mezzanine financing is seen as a riskier form of lending by banks and similar lending channels, which is why commercial and private lending firms offer this solution. The repayment terms are also less flexible and typically require more frequent payments in order to reduce the lender’s risk. This can make it difficult for some borrowers, especially those with limited cash flow or high levels of debt, to keep up with their repayments. For these reasons, mezzanine financing is typically reserves for high-net worth property investments.
Mezzanine financing can be a great option for property investors looking to finance their next project. It provides access to capital that isn’t available through traditional channels, and it’s often the only way to bridge the gap between equity and debt when there isn’t enough of either source alone. Contact Artis Commercial Capital today to learn more about our equity financing solutions.