What is mezzanine financing?
Mezzanine financing a popular way of borrowing – mainly in commercial property. This type of financing is the obtaining of capital through loans without offering collateral. Usually, if the borrower defaults on the loan, the lender can convert the loan into an ownership stake, by exercising warrants or options built into the deal.
Example: Joe wants to buy to build more units on his land but lacks the funds to do so right away. Rather than raising money by issuing shares in the company (and having the complications which ensue), Joe finances his expansion through a mezzanine lender who agrees to lend the money to Joe under the condition that the lender receives benefits like warrants or options in case of any default payments.
Should Joe default on payments based on the terms of the loan, the lender will convert the outstanding balance into an ownership share as outlined on the original agreement. If necessary, the share can be sold or transferred at the lender’s discretion.
Through mezzanine financing, a business owner can generate capital in order to fund expansion. This is done without having to create shareholders with ownership, interest and voting rights.
What are the disadvantages of mezzanine financing?
There are a few downsides to standard mezzanine funding.
– Lenders charge higher interest rates to account for the risk of default due to the minimal due diligence involved and
– There are stricter terms and penalties as the mezzanine debt is a lessor priority than senior debt in regards to a company’s loan repayment obligations.
– Lenders can restrict spending like dividend pay outs and impose other limitations.
“HiP could solve the UK housing crisis”Peter Bill,
"It’s a game changer, and a very exciting one."Sophie Eastwood,
WHAT WE AIM TO DO
So how can HiP help with mezzanine financing?
HiP provide an alternative to mezzanine financing.
HIP LIKES TO DO THINGS DIFFERENTLY
Instead of going through a process of high interest rates and risk of part-ownership if payments are defaulted (as would happen with mezzanine), businesses can use HiP to receive finance through the network of investors.
The advantages of this are far reaching
This doesn’t carry the same disadvantages of mezzanine as any default payments will be covered by the increasing equity, and interest rates won’t be as high.
We can also look at alternative ways of raising capital, like accessing equity tied up in the commercial building, allowing you to tap into your property’s wealth.
HOW YOU BENEFIT WITH HIP
HiP is the NEW Way
to finance property
Reinvent the way you look at property investment
HiP is hugely beneficial to property owners, changing the way we can use bricks and mortar into something with far more fluidity than ever before. It is a debt and equity exchange, with investors all over the world interested in putting their money into property.
Turn Your Property Into a Bank Account
For you, this means a democratised property market; withdraw money from equity without moving, borrowing or losing ownership, use your equity to cover your monthly mortgage repayments, or trade your equity against your mortgage.
Flexibly in the high-yield property markets without limits
We allow you to do all this, and much more, without the penalties, costs and charges that a traditional lender would impose. Whatever your property investment or finance needs may be, HiP is on hand to help you take your next step.
HiP UK will be regulated by the FCA*
And have an agreed licence for trading in the UK and Europe. *As we go live these permissions are being reviewed.
HiP UK is based in London.
HiP's 20+ staff operate from Camden, London. With registered address in Bristol.
HiP is award winning
We have won an awards and been shortlisted for more. We came second in the worldwide PropTech Innovation Awards and as Bronze in the Digital Impact award 2017 for “Best use of digital by sector”.
Register your interest
Just fill out the form on this page now, and you’ll be the first to find out about HiP, which we are busy creating. We can’t wait for you to join the property revolution.
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