---
title: "What are the disadvantages of mezzanine financing?"
description: "Mezzanine financing in property development can be a highly effective tool for increasing funding on a project, especially when traditional senior lenders are unable to meet the full borrowing requirement. However, it also comes with a number of disadvantages that developers need to carefully weigh before proceeding."
url: "https://mortgagelane.com/guides/mezzanine-finance/what-are-the-disadvantages-of-mezzanine-financing"
site: "Mortgage Lane"
collection: "guides"
date: "2026-04-13"
author: "Written by an adviser at Mortgage Lane"
category: "Mortgage guide"
reviewed: "2026-10-08"
reading_time: "3 min"
byline: "Written by an adviser at Mortgage Lane"
author_credentials: "CeMAP · FCA authorised firm"
language: "en-GB"
robots: "index,follow"
---

# What are the disadvantages of mezzanine financing?

Mezzanine financing in property development can be a highly effective tool for increasing funding on a project, especially when traditional senior lenders are unable to meet the full borrowing requirement. However, it also comes with a number of disadvantages that developers need to carefully weigh before proceeding.

Mezzanine financing in property development can be a highly effective tool for increasing funding on a project, especially when traditional senior lenders are unable to meet the full borrowing requirement. However, it also comes with a number of disadvantages that developers need to carefully weigh before proceeding.

[Mezzanine finance](https://mortgagelane.com/definitions?term=mezzanine-finance)

Development finance

Finance that sits between senior debt and the borrower’s equity in a project’s funding structure.

[Read the full definition of Mezzanine finance](https://mortgagelane.com/definitions?term=mezzanine-finance)

Back to overview

[Mezzanine Finance](https://mortgagelane.com/short-term-finance/mezzanine-finance)

Related definitions

[Mezzanine finance](https://mortgagelane.com/definitions#def-mezzanine-finance)

·

[Development finance](https://mortgagelane.com/definitions#def-development-finance)

## What are the disadvantages of mezzanine financing?

Mezzanine financing in property development can be a highly effective tool for increasing funding on a project, especially when traditional senior lenders are unable to meet the full borrowing requirement. However, it also comes with a number of disadvantages that developers need to carefully weigh before proceeding.

One of the most significant downsides is the higher interest rate. Since mezzanine lenders take on more risk than senior debt providers, being repaid only after the main lender has been satisfied, they typically charge much higher rates. These can range from 12% to 20% per annum, making it one of the most expensive forms of property finance. This can substantially reduce your overall profit margin, particularly if the project faces any delays or cost overruns.

Another drawback is the subordinated nature of mezzanine finance. If the project underperforms or collapses, mezzanine lenders are only repaid after the senior lender has received their dues. This increases the risk for the mezzanine provider and can complicate financing structures, particularly where multiple stakeholders or lenders are involved.

Mezzanine finance also introduces more legal and administrative complexity. The use of a second legal charge, inter-creditor agreements, and detailed due diligence requirements mean that legal costs and setup times can be significantly higher than standard property development loans. These additional layers can delay project timelines or cause issues if not managed correctly.

In many cases, mezzanine lenders will also impose stricter covenants and oversight requirements. These might include mandatory reporting, project updates, site inspections, and, in some instances, conditional clauses that allow the lender to intervene if certain milestones aren’t met. This added scrutiny can feel restrictive, especially for experienced developers used to more autonomy.

Furthermore, mezzanine loans are typically short-term in nature, with terms of 12-24 months. This creates pressure on the developer to exit the facility promptly, either through a sale or refinancing. If the market slows or if unit sales are delayed, this can create financial strain or force the developer to accept less favourable refinancing terms.

## Talk it through with an adviser

Speak to a Mortgage Lane adviser about your circumstances and the next steps.

Published: 2026-04-13

Last reviewed: 2026-10-08

Source: https://mortgagelane.com/guides/mezzanine-finance/what-are-the-disadvantages-of-mezzanine-financing