Senior Stretch Loans
What is a Senior Stretch Loan?
A senior stretch loan is a first charge development loan which makes up 75% of the property purchase price (residential) or 65% of the property purchase price.
This type of funding will typically make up the majority of the financing of the property and which could be up to 75% of the property value or 90% of the total project costs, typically whichever is the lower of the two figures.
Typically consisting of several million pounds, a senior stretch loan is commonly available for experienced property developers with smaller cash contributions and it can help a developer’s equity go further and someone with multiple projects or investments.
Senior stretch loans are secured against the real estate that is used and will be a higher priority for repayment than mezzanine financing.
Senior stretch loans are also known as unitranche financing or unitranche debt.
What is Senior Stretch Debt or Loans Used For?
Senior stretch loans are designed to help property developers gain as much capital and leverage as possible.
Since this facility allows you to become a cash buyer, it helps ambitious developers to capitalise on opportunities and make fast completions.
If a property developer wants to purchase an additional project or scheme, their funds are likely going to be tied up elsewhere and they will want to keep their equity invested in each scheme.
With a senior stretch loan, the lender can provide as much of the project costs as possible to minimise risk.
Senior stretch debt can be used for both residential and commercial properties including homes, flats, mixed use schemes, student accommodation, hotels, warehouses, offices and nursing homes.
A senior stretch loan can also be used to fund a leveraged buyout or a recapitalisation.
How is a Senior Stretch Loan Different From Mezzanine Finance?
The key difference is that senior stretch finance is secured against the property and can be used to fund a very large percentage of the entire purchase and project costs (up to 90% of project costs).
By comparison, mezzanine finance sits on top of a senior debt and is unsecured. It is a lower priority in terms of repayment and will usually give the lender some equity in the overall project. One might view mezzanine finance as a way to ‘top up’ an existing senior loan.
Therefore, the risk levels are very different, with senior stretch being slightly less risk, but mezzanine finance holding more risk because it is added later in the project, it is second in terms of receiving payment and is not backed by security.
The interest rates for both are indicative of the risks presented and the Mera team is delighted to offer some indicative rates and quotes upon request.
How is a Senior Stretch Loan Different To Bridging Finance?
There are certain similarities in the way that senior loans are bridging loans can be used to complete fast on properties and are collateral backed.
The main differences are surrounding the length of the loan, with bridging usually extended to 24 months (and senior stretch to 36 months).
Bridging loans typically allow you to borrow up to 75% of the property’s value, while senior stretch loans can provide up to 90% of total project costs.
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How Much Can Borrow With a Senior Stretch Loan?
Mera can offer senior stretch loans ranging from £1 million to £50 million depending on various factors including credit profile, project size, developer experience, exit strategy, GDV and other factors.
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What Are The Loan Terms For a Senior Stretch Loan?
Residential - up to 75% of the lower of the market value or the purchase price of the property.
Commercial - up to 65% of the lower of the market value or the purchase price of the property
Case studies
