Mezzanine Financing: Filling the Capital Gap When Senior Debt Stops Short

Senior lenders get you most of the way. Your equity covers the rest — until it doesn't. That gap is where mezzanine debt earns its name.

What Mezzanine Actually Is

Mezzanine is subordinated (junior) debt — it sits between senior debt and equity in the capital stack. It carries a longer term than senior debt because it gets repaid second. Most transactions pair subordinated debt with an equity co-investment; debt-only structures exist but are less common.

Key traits from live market programs:

• FNB Mezzanine Finance targets lower middle-market companies — generally $5M to $50M in revenue. Typical uses: acquisitions, ownership transitions (buyouts), expansions, recapitalizations, vertical integrations, and company sales.
• Greystone Short-Term Mezzanine is structured as a short-term product — see their term sheet for exact pricing and duration.
• Lument (Fannie Mae DLA Mezzanine) services multifamily mezzanine loans nationally. Loan amounts start at $1,000,000, must be paired with a Fannie Mae DUS fixed-rate mortgage of $10M+, go up to 10-year terms (coterminous with the senior loan), up to 85% LTV, and carry a 1.10x minimum combined DSCR. Interest-only is typical; amortization mirrors the senior mortgage. Supplemental mortgages after year one can retire the mezzanine.

When Mezzanine Applies

Mezzanine fits event-driven capital needs — acquisitions, ownership transitions (buyouts), expansions, recapitalizations, vertical integrations, company sales, or gap financing when senior debt won't cover the full stack. If you have a lower middle-market company ($5M–$50M revenue) funding a transition, or a multifamily investor pairing with Fannie Mae DUS senior debt (Lument's DLA program), mezzanine fills the gap. Short-term bridge-style mezzanine applies to time-sensitive property transitions (Greystone's program).

How Mezzanine Stacks

Senior debt (first mortgage / senior bank line) → Mezzanine debt (subordinated, longer-term) → Equity. Mezzanine is junior — meaning it absorbs loss after senior debt but before equity — which is why it commands higher yield than senior debt and a longer repayment profile.

What to Watch Before Signing

• Confirm whether the mezzanine requires an equity co-investment or is debt-only.
• Verify LTV caps (Lument's DLA caps at 85% combined) and DSCR minimums (1.10x combined on Lument's structure).
• Understand prepay terms — declining annual premium schedules are standard; no premium in the final 90 days on Lument's DLA.
• Confirm property eligibility — Lument requires stabilized or near-stabilized multifamily, 5+ units (typically 100+), experienced ownership, primary/secondary MSAs only.
• For FNB-style mezzanine, confirm revenue range ($5M–$50M) and event-driven use case (acquisition, transition, recap, expansion).

Not Every Gap Needs Mezzanine

If the gap is small and short-term, bridge or hard money may be faster and cheaper. If you are a single-property investor without a senior DUS mortgage, mezzanine structures designed around paired senior loans don't apply. Match the product to the capital stack — don't force a mezzanine solution onto a bridge problem.

Sources: FNB Online — Mezzanine Finance; Greystone — Short-Term Mezzanine Financing Loan Program Term Sheet; Lument — Delegated Lender Affiliate (DLA) Mezzanine Financing Term Sheet. Programs subject to underwriting and credit approval. Terms change; verify with the lender before closing.