Stretch Senior Debt: Higher Leverage From One Lender

What Stretch Senior Debt Actually Is

You get a single development loan that advances to a higher loan-to-cost, usually 80 to 85%, than standard senior debt would, and without a separate mezzanine facility behind it. One lender takes a first charge and provides the whole debt.

That’s the simplicity you’re buying. There is no second-charge lender to negotiate with, no inter-creditor agreement between two funders, and no second set of arrangement and monitoring fees coming out of your cash flow before a brick is laid, so when the offer comes back you’re reading one term sheet rather than a senior lender stitched to a mezzanine fund. What you pay for it is a higher price across the whole facility.

Stretch Senior vs Senior Plus Mezzanine

You’d otherwise reach the same gearing with two loans stacked. Standard senior debt advances to roughly 65 to 70% of cost, and mezzanine finance fills the gap up to your target equity on a second charge behind it.

Stretch senior collapses that stack into one first charge, filling the same gap to 80 to 85% of cost, but the lender prices the entire facility higher to reflect the extra exposure it’s taking. You can’t have the low senior rate and the high gearing at the same time, and the stretched price applies across the whole loan rather than only to the part above 70%, so your cash flow carries it every month of the build.

The Typical Parameters

You’ll usually see stretch senior advance to around 80 to 85% of total project cost, capped at roughly 65 to 70% of gross development value. Shawbrook, for example, publishes a maximum of 85% of cost and 65% of gross development value on new build. The rate runs higher than pure senior because the lender carries more of the risk, and it applies across the whole facility.

Your own equity still has to show up, at 15 to 20% of total project cost, alongside an arrangement fee charged as a percentage of the facility. Those numbers move with the scheme and your track record, so treat them as the shape of the market rather than a quote. Funds are released in stages. Shawbrook, for example, pays out in arrears against evidenced work on site, so when your costs run ahead of the certified schedule, it’s your cash flow that covers the gap until the next stage is released.

When to Choose Stretch Senior over Mezzanine

You’ll favour stretch senior when simplicity matters: one lender, one set of legal documents, one monitoring arrangement. On a smaller scheme, or a first deal at this level of gearing, stripping out the mezzanine layer cuts both execution risk and cost.

Mezzanine takes over above about 85% of cost, where most stretch senior lenders stop, and on bigger schemes it can also come out cheaper: a low senior rate on the bulk of the debt plus a small, dearer mezzanine tranche sometimes beats one stretched rate on everything. Availability decides this as often as price does. If no stretch senior lender is active on your scheme type, a mezzanine fund behind a standard senior loan is the only route left, and the second lender adds time before your cash flow sees a first drawdown.

What Stretch Senior Costs

You pay the stretched rate on the entire loan rather than only on the part above standard senior, plus an arrangement fee charged as a percentage of the facility. For scale, the broker Construction Capital quotes senior development finance from 6.5% a year and mezzanine from 12% a year (1% a month). That higher headline is the price of the extra gearing.

Your saving is structural, and it lands on your cash flow up front rather than over the term: one valuation, one monitoring surveyor and one set of legals, with no second lender’s arrangement and monitoring fees on top. Whether that beats a mezzanine stack is a matter of your own numbers rather than of which structure sounds simpler. That’s the comparison that decides it. Run the total finance cost of both routes against your gross development margin before you choose.

Stretch Senior Debt FAQs