Commercial mezzanine financing is any debt or preferred equity from a lender/financier for commercial properties that take a subordinate position to the senior lender. There is an order or hierarchy to this type of financing. If you picture a pyramid or triangle, the bottom section represents the senior debt which provides the majority of the financing, the middle section is the mezzanine financing which is the financing that fills the gap between senior debt and equity, and the top of the pyramid is equity financing (the sponsor’s contribution).

Typical mezzanine loans are sought out for recapitalization, value-add, construction, and acquisition transactions. Mezzanine financing is used along with senior debt financing which means less money out of pocket for the borrower. This in turn can lead to a decrease in annual profits but an increase in return on equity.

How To Get a Commercial Mezzanine Loan?

Given the subordinate nature of a mezzanine loan, the mezzanine lender will typically require an inter-creditor agreement. Negotiations of such agreements require open lines of communication between the credit and legal departments of all parties involved. Simple Commercial Capital can help you find the right lender/financier that has a long history of mezzanine specific loans, and facilitate inter-creditor negotiations.