The capital stack, in plain words
Every project is funded in layers. The senior loan is paid back first and is the cheapest. Your equity is paid back last and takes the most risk. In between could sit mezzanine debt (a second ranking loan) or preferred equity (an investment in the project that is paid back before your own equity). ASIC describes lenders holding any combination of senior debt, mezzanine debt and equity positions in the same borrower.
| Layer | Ranks | Risk and cost |
|---|---|---|
| Senior development loan | First | Lowest |
| Mezzanine debt | Second, behind the senior loan | Higher |
| Preferred equity | Behind all debt, ahead of your equity | Higher again |
| Your equity | Last | Highest, and keeps the profit |
When it could make sense
- Your equity is tied up in another project or the land, and the senior lender wants more money in.
- You'd rather keep the profit than give a large share to an equity partner.
- Timing: a settlement or start date is fixed and other options are too slow.
What to check
- The senior lender's consent: most senior lenders control whether a second lender is allowed and on what terms.
- The full cost: interest, fees and any share of profit, against what that money lets you earn.
- What happens if things go wrong: who could step in, and when.
- How it is repaid at the end, alongside the senior loan.
Extra layers of funding leave less room if costs rise or values fall. ASIC notes construction and development finance has made up most credit losses in past downturns. Run the feasibility with conservative numbers before adding a mezzanine layer.
Common questions
What is the difference between mezzanine debt and preferred equity?
Mezzanine debt is a loan that ranks behind the senior loan. Preferred equity is an investment in the project that is repaid after all lenders but before the developer's own equity. They are documented and secured differently.
Is mezzanine finance expensive?
It costs more than the senior loan because it takes more risk. Whether it is worth it depends on what it lets you do, such as keeping more of the profit than an equity partner would take.
Sources
- ASIC Report 814, Private credit in Australia (22 September 2025), checked 26 October 2026
- ASIC RG 273: mortgage brokers' best interests duty, checked 26 October 2026
General information only, not credit advice. It doesn’t take your objectives, financial situation or needs into account. Rules and figures change; check them, or talk to Joshua, before you rely on them.