Mezzanine Development Finance
Mezzanine finance is most commonly used in situations where the equity component of a company's capital structure is insufficient to satisfy Finance Institutions. Finance Institutions seek to have a sufficient amount of capital subordinate to them, normally in the form of equity or own contribution, to shield them from loss of any of the capital they lend to a company. Finance Institutions, typically banks and finance companies, are generally indifferent to the form of the subordinate capital below them in the capital structure, provided it will be there beyond the term of their loan, not place undue demands on the cash flow of the company, and not possess rights greater than theirs.
This Finance Institution's indifference makes mezzanine finance attractive to Property Developers since the all-in cost of mezzanine is considerably lower than what is required by equity investors, causing mezzanine to look like "cheap equity" to a company, thus a cost effective alternative. Furthermore, mezzanine finance is less dilutive, requiring the owners to give up less of the company or profit share than an equivalent amount of pure equity would require.
SMI will consider transactions where the loan / investment has a term of not longer than 9 months.
Because we do not have specific products, but rather look at each unique opportunity it is best to present your opportunity to see if we can structure a customized transaction.
Example:
Residential Development: (Plot & Plan or Sectional Title)
A developer has secured land and obtained all the necessary rezoning approvals. The purchase is also subject to development finance. The Institution involved would fund the development subject to a 20% own contribution by the developer and 120% presales of the loan amount. All criteria has been met. Our developer client is short on own contribution and might loose the transaction.
| Land Cost: | R5m |
| Development Cost: | R15m |
| Approved Loan: | R16m |
| Own contribution: | R4m |
| Client: | R2m |
| Mezzanine Finance: | R2m |
The mezzanine finance structure will carry an interest and or profit share component and will be secured through an undertaking from the transferring attorney to repay the loan and profit share together with Mezzanine
Bridging Finance
Mezzanine Finance also specializes in Bridging Finance. Providing the assistance you need, when you need it!
With Bridging Finance we pay particular focus on short-term bridging finance. We provide bridging financing legal entities only ranging from R1 000 000 to R5 000 000. We will advance funds for periods of up to 90 days.
We structure every transaction in such a way that a speedy solution can be found.
Examples of typical transactions:
- Developers with a temporary cash flow problems.
- Sellers that need immediate access to cash from a property sold.
- Owners who need cash against a property where a bond has been approved.
- Financing of the second property before registration of the sale of the first property.
- Any other requests will be considered