Mezzanine vs bridging loans: which do you need?

Developers often conflate mezzanine finance with bridging loans, but they do fundamentally different jobs in the capital stack. One is about buying quickly; the other is about reducing the equity you leave in a scheme you are building. Getting the distinction right saves money and avoids using the wrong tool at the wrong stage.

Bridging loans

A bridging loan is a first-charge, standalone facility, typically used for:

• Buying property quickly, at auction or to break a chain
• Short-term funding while longer-term debt is arranged
• Light refurbishment projects

Leverage is usually 65 to 75 percent of value, priced indicatively at 0.5 to 1.5 percent a month. Because a bridge stands on its own and takes the first charge, the bridging lender is effectively the senior lender on that asset and is repaid first. Terms are short, usually measured in months, and the facility is designed to be refinanced or repaid from a sale.

Mezzanine finance

Mezzanine is a second-charge facility that:

• Sits alongside an existing senior loan rather than replacing it
• Lifts combined leverage to 85 to 95 percent of cost
• Is designed specifically for development schemes
• Requires an intercreditor agreement with the senior lender

Pricing is indicatively 12 to 18 percent a year, reflecting the subordinated position. Mezzanine debt does not replace the senior facility; it fills the gap between senior debt and equity so the developer can commit less of their own cash to each scheme.

Security: first charge versus second charge

The clearest difference between the two is where the lender sits. A bridging loan almost always takes a first charge: the bridging lender ranks first and is repaid first. Mezzanine finance takes a second charge, ranking behind the senior debt on the development. That subordination is the whole point of mezzanine, and it is why the loan is priced higher and why the lender relies on an intercreditor agreement with the senior lender to define its rights in a default. Both types of facility are commonly backed by personal guarantees from the borrower. A third option, preferred equity, sits even closer to the equity layer and can fill part of the same gap, though it is structured and priced differently again.

Side by side

Using both in sequence

The choice is often not either/or. A very common pattern runs both facilities in sequence across the life of one project. A developer uses a bridging loan to buy a site at auction or off-market, moving faster than a development lender could. Once the purchase completes and planning is confirmed, they refinance: the bridge is repaid and replaced by senior debt for the build, with mezzanine finance added on top to lift leverage and release equity. The bridge solves the speed problem at acquisition; the senior-plus-mezzanine stack solves the funding problem during construction.

Cost comparison: a worked example

Consider a developer acquiring a £1m site and then building it out. The bridge and the mezzanine do different jobs, so their costs are not really competing, but it is worth seeing them together.

Illustrative only. Every facility is sized and priced case by case.

Over a short acquisition window the bridge's monthly rate is modest in cash terms because it runs for only a few months. Across an 18-month build, the mezzanine costs more per pound than the senior debt, but because it funds a thinner slice, the blended cost of the build stack still lands close to 10 percent a year. Judge each facility on the job it does and the time it runs, not on the headline rate alone.

Which do you need?

If you are buying and need short-term funding, that is a bridging loan; Bridge Financing specialises in exactly that market. If you are developing and want to cut the equity you leave in the scheme, that is mezzanine.

Is a bridge loan the same as a mezzanine loan?

No, they are different instruments even though both are short to medium-term property finance. A bridge loan takes a first charge, stands on its own, and is used to buy or refinance quickly. A mezzanine loan takes a second charge, sits behind a senior development facility, and exists to reduce the equity a developer commits to a build. A bridge is repaid from a sale or a refinance of the same asset; mezzanine is repaid from the completed development alongside the senior debt. They can appear on the same project at different stages, but they are never interchangeable.

What are the disadvantages of a bridging loan?

Bridging is fast and flexible, but it has real drawbacks. The monthly rate is cheap in cash terms only while the loan runs for a short period; let a bridge overrun and the cost mounts quickly. It depends entirely on a credible exit, whether a sale or a refinance, and if that exit slips the borrower can face default or expensive extension terms. Arrangement and exit fees add to the headline rate, and leverage against value is capped, so a bridge rarely funds a full build on its own. For construction, a senior facility with mezzanine on top is usually the cheaper and more durable structure.

A decision checklist

Run through these questions to see which you need:

1. Are you buying or building? Buying quickly points to a bridge; building points to senior plus mezzanine.
2. Do you already have a senior facility? Mezzanine sits behind one; bridging stands alone.
3. Is the priority speed or leverage? A bridge is about speed of completion; mezzanine is about reducing the equity you leave in.
4. How long do you need the money? Bridges are short, measured in months; mezzanine runs with the build programme.
5. Does the margin carry the cost? Mezzanine only makes sense where profit on cost has headroom above 20 percent.

Still unsure which fits your scheme? See our mezzanine finance page for how we structure and price the middle layer, or model the leverage and the equity you would release with the mezzanine leverage calculator. If a bridge is what you actually need first, arrange that, then come back to us for the build.