Mezzanine Financing for Business Acquisitions and Commercial Real Estate

Many buyers reach the same wall. There is a signed letter of intent or purchase agreement, a senior lender ready to advance 55–70% of the capital stack, and a real asset or operating business with clear cash flow. The gap sits in the middle. Equity is not deep enough to close, and senior lenders will not stretch further without driving covenants and pricing to a breaking point.

Mezzanine capital exists for that gap. Structured correctly, it fills the space between common equity and senior debt so that acquisitions and commercial real estate transactions can close at 75–85% loan to value or loan to cost. Financely works with sponsors and operating companies to arrange this layer of capital through regulated partners, with terms that stand up in front of lender and investor credit committees.

What Mezzanine Financing Actually Is

Mezzanine financing sits behind senior loans and ahead of ordinary equity in the capital stack. It is usually structured as a subordinated term loan, preferred equity, or a hybrid instrument with a fixed coupon and an equity upside feature such as warrants or profit participation. In a downside scenario, senior lenders are paid first, mezzanine investors stand behind them, and common equity sits last.

In practical terms, it means additional capital for a transaction without giving up full control of the asset or company. Governance and reporting rights are negotiated, but day to day control normally remains with the sponsor or operating management, provided covenants and payment obligations are met. That balance between extra leverage and retained control is what makes mezzanine attractive for buyers who have the skills to run the asset but want to keep their equity cheque tight.

Where Mezzanine Capital Sits in the Deal

In a typical acquisition or commercial real estate structure, senior lenders will fund up to the point where they are comfortable on coverage ratios, asset values, and exit liquidity. Above that sits the mezzanine tranche. It may be secured by a second charge on hard assets, a pledge of shares in the holding company, or both. Intercreditor agreements govern who can do what and when if things go wrong.

For sponsors and owners, the key question is not whether mezzanine capital is available in theory. The question is whether the cash flow profile of the asset or business can support the combined senior and mezzanine burden once taxes, maintenance capex, and working capital swings are stripped out. That is where careful structuring and realistic modelling matter more than headlines about high leverage.

Deal Sizes, Leverage Levels, and Ticket Parameters

Mezzanine tickets arranged through our partners typically support total capital stacks from mid single digit millions up into the lower mid market. Combined senior and mezzanine leverage usually ranges between 3.0x and 5.0x EBITDA for operating businesses and up to roughly 80–85% loan to value or loan to cost for commercial real estate, depending on asset quality, lease profile, and sponsor strength.

The mezzanine slice itself often sits between 10% and 30% of the total funding package. It is priced above senior loans and below equity on a risk adjusted basis. Documents usually include covenants, reporting obligations, limits on additional indebtedness, and negotiated controls around distributions and asset sales. Any solution that offers “easy money” without these features should be viewed with caution.

Security, Covenants, and Pricing Expectations

Mezzanine investors want clear visibility on how they are protected. That usually means a mix of second ranking security over tangible assets, pledges of shares in the borrower or holding company, and in some cases personal or corporate guarantees. In many structures, investors also request an equity kicker to balance risk and reward over the life of the deal.

Covenants tend to track senior lenders but with added focus on cash generation and leverage at the level where mezzanine sits. Breaches are taken seriously. Mezzanine capital is patient in the right structure but not forgiving if communication breaks down or numbers are misrepresented. Straight answers and timely reporting are non-negotiable.

Our Mezzanine Financing Process

Financely acts as arranger and advisor through regulated partners. We do not lend from our own balance sheet. Our role is to design a mezzanine structure that fits the transaction and then match it with capital providers who can commit and close.

The process starts with a short assessment of the deal: target, sector, EBITDA, purchase price, equity available, senior lender appetite, and timing. If the profile is realistic, we move into detailed modelling and structuring to set leverage levels, coverage ratios, and headroom for downside scenarios. Only once that work is complete do we approach selected capital providers with a clear package rather than a vague teaser.

From there, our work covers term sheet negotiation, coordination with senior lenders, intercreditor mechanics, support through credit due diligence, and assistance during documentation. Sponsors stay focused on the acquisition or project while we manage the moving parts of the capital stack.

What Buyers and Sponsors Need to Prepare

Mezzanine investors expect serious preparation. At a minimum, that means audited or review level financials, a detailed financial model, a clear sources and uses table, and a realistic business plan for the next three to five years. For commercial real estate, that includes rent rolls, lease terms, capex plans, and independent valuations or appraisals where available.

Cash equity also matters. Purely funded equity or fully vendor financed structures are rarely accepted. Sponsors should be prepared to show real capital at risk, clear governance arrangements, and a track record that supports the story they are telling. Where these elements are missing, mezzanine conversations tend to stop early.

When Mezzanine Financing Is Not a Fit

There are cases where mezzanine capital is the wrong tool. Early stage businesses without consistent earnings, highly speculative development projects with no clear path to income, and situations where owners refuse to contribute any equity are common examples. In those situations, extra leverage only increases the chance of default and conflict.

A candid view on whether a transaction is ready for mezzanine financing saves time for all parties. Part of our job is to say no when the profile does not justify additional subordinated debt or preferred equity, rather than dress up numbers to force a closing.

Mezzanine Financing FAQ

How much leverage can mezzanine capital help me reach?

In many mid market deals, combined senior and mezzanine funding can bring total leverage into the 75–85% range of enterprise value or project cost, subject to cash flow strength, sector, and sponsor quality. There is no fixed rule, and every mandate is underwritten on its own merits.

Can mezzanine financing replace my equity contribution?

No. Mezzanine capital is not a substitute for real equity. Capital providers expect sponsors to have cash at risk. Structures that try to stack vendor notes, fully funded “equity”, and mezzanine on top of each other without genuine sponsor capital are rarely bankable.

Do you lend your own funds?

Financely does not lend from its own balance sheet. The firm operates as an advisor and arranger through regulated partners. Mezzanine funding is provided by third party lenders and investors, subject to their underwriting, documentation, and approvals.

What is a realistic timeframe to close a mezzanine deal?

Once a transaction is properly prepared and a clear structure is in place, indicative terms can often be obtained in a matter of weeks. Closing timelines then depend on due diligence, coordination with senior lenders, legal work, and any regulatory approvals. Rushed processes usually lead to weaker terms or failed closings.

What fees should sponsors expect to pay?

Mezzanine investors charge interest and may also receive fees or equity participation. Financely charges advisory fees for structuring, arranging, and process management. Exact economics depend on complexity, size, and time required, and are set out in a separate mandate letter before any process starts.

Disclaimer: This page is for general information only and does not constitute advice, an offer, or a solicitation to buy or sell any financial product. References to mezzanine financing, leverage levels, lenders, and structures are high level and may not reflect the details of your situation. Financely acts as advisor and arranger through regulated partners and is not a bank or direct lender. Any facility or investment is subject to underwriting, KYC, AML, sanctions screening, legal review, perfected security, and approvals by relevant stakeholders. Professional and corporate audience only.