What is Mezzanine Finance?

Mezzanine finance is a hybrid form of business funding that sits between senior debt and equity in a company's capital structure. It typically takes the form of subordinated debt — ranking below senior lenders in a default scenario — and bridges the gap between the senior debt available and the total funding required. It carries a higher cost than senior debt to reflect the increased risk. Seven Hills Capital Group has relationships with specialist mezzanine lenders and will introduce your transaction to the right provider.

Senior debt from a mainstream lender covers the primary portion of the funding requirement

Mezzanine finance bridges the gap between senior debt and the buyer's equity contribution

Mezzanine lenders take a subordinated position — ranking below senior debt in any default

Higher returns delivered through a combination of cash interest and equity warrants or participation rights

On exit or refinancing, mezzanine debt is repaid after senior debt obligations are cleared

Pros

• Bridges the gap between senior debt and equity — enabling larger transactions than either alone
• Less equity dilution than raising additional equity capital or bringing in investors
• Flexible structures can be tailored to the specific transaction timeline
• Available for acquisitions, large expansions and significant development projects

Things To Consider

• Higher cost than senior debt — typically 12–20% per year on a blended basis
• Complex to structure correctly — specialist advisers required
• Mezzanine lenders typically require equity warrants or participation rights as additional return
• Only suitable for larger transactions — typically £2 million and above

How Seven Hills Capital Group Could Help Your Business

Every business situation is different. The illustrative examples on our case studies page are based on common scenarios we see from UK business owners and landlords - showing how the right finance product, found through a whole-of-market broker, can make a real difference.

When would I use mezzanine finance?

Mezzanine finance is used when the senior debt available does not cover the full funding requirement and you do not want to raise further equity. It is most commonly used in UK management buyouts, business acquisitions and large-scale development projects.

What is the cost of mezzanine finance?

Mezzanine finance typically costs 12–20% per year on a blended basis, combining cash interest with payment-in-kind (PIK) interest rolled up to exit. The total cost is higher than senior debt but in most cases lower than the dilution cost of raising additional equity.

What is the difference between senior debt and mezzanine debt?

Senior debt ranks first in any default scenario — the senior lender is repaid before all other creditors. Mezzanine debt ranks below senior debt and accepts greater risk in exchange for a higher return. This subordinated position is what makes mezzanine finance more expensive than senior business lending.

Do mezzanine lenders take equity in my business?

Often, in part — in the form of warrants or participation rights rather than direct equity. This gives the lender a share of the upside on exit alongside their interest return. The extent of equity participation is always negotiated as part of the deal terms.

What is the minimum transaction size for mezzanine finance?

Most UK mezzanine providers look for transactions of £2 million or more. Below this level the arrangement cost typically outweighs the benefit and alternative capital structures are more appropriate. Seven Hills Capital Group will advise on the most efficient capital structure for your transaction size.