Mezzanine financing became one of the popular forms for commercial development finance; usually when supporting applications for 100% development finance. Ever since, it has long been a useful tool in development finance UK. More investors are relying to mezzanine financing since investors experienced a meltdown in equity and defaults in high yield bond investments. Likewise, businessmen are realizing that mezzanine finance offers lower give-up scheme usually derived from equity finance.

By definition, mezzanine finance is a cross between a loan and equity in the form of a call option or convertible that allows the investor to convert the loan into an equity investment at a previously agreed price. It is actually a little lower than senior debt arrangement but is above than common equity arrangement. Even so, some investors may not incorporate an equity component in the mezzanine finance. Rather, they agree for a higher interest rate for their 100% development finance; usually towards the end of the loan. Some would just incorporate other type of formula tied to the financial performance of the company such as arranging for a percentage of the sales or profit. If investors opt for the former arrangement (higher interest), it would usually be higher interest rate than senior debt which comprise at about 10-12%; yet, it suffers less dilutive effect in shareholding compared to pure equity investments.

Furthermore, mezzanine finance is usually less stringent than senior debt. Traditionally, mezzanine finance was viewed as a bridging loan, but it was eventually used as a stand-alone investment in buyouts or as other form of development finance UK to further expand a business.