Sometimes the developers we work with ask Invest & Fund for subordinated finance, which ranks behind (or is junior to) our senior debt piece – additional finance beyond the maximum 75% loan to value ratio we set out in our credit terms, usually borrowed at much higher interest rates.

For the right borrowers, this kind of lending can be a helpful addition to their development facility, giving them the opportunity to finance a project using less of their own money and more borrowed capital. Taking an example, the initial 75% of the total development costs might be provided by first charge lenders (the senior debt) at a rate of 7-9% p.a. The borrower might use subordinated debt, charged at 15-20% p.a, to cover an additional 10% of development costs and fund the remaining 15% from their own capital.

Increased rates, increased risk
A subordinated loan might deliver lenders a rate of return of between 15-20%, but like most investments, the increased return comes with increased risks. When it comes to repayments from the developer, subordinated loan lenders sit behind senior debt lenders and only get their money back once these lenders have been fully repaid.

If a development project doesn’t go to plan, overruns on costs, doesn’t sell or the developer can’t complete the project, the amount of equity held in the development may drop, and this could damage the amount of capital available to subordinated loan lenders.

Experienced investors only
The increased risks associated with subordinated loan lending means that they should only be considered by experienced property lenders. Before you can lend on such an opportunity, we ask that you certify your capability to lend. Our minimum lending amount is £10,000, and lenders should have experience of lending at least £100,000 against real estate, either with Invest & Fund, another lending platform or privately; and the capability to lend at least £25,000 on a single loan.

Getting started
We publish all of our subordinated loan opportunities directly to our Lending Marketplace, and lenders can also buy and sell subordinated loans on our Resale Marketplace. Each time you wish to bid on such an opportunity, you will be required to complete a short Q&A to establish your suitability to lend. Once this is complete, we give you access to the opportunity and all of the supporting information, so you can make an informed decision on each lending opportunity.

As with all lending opportunities, it’s important to remember that lending places your capital at risk and payments are not guaranteed if a borrower defaults. If you would like to find out more, please contact us on or call our Lender Relations Team on 01424 237146.

Lenders’ capital is at risk. Remember, payments are not guaranteed if the borrower defaults. Subordinated loans are also known as second or third charge loans and mezzanine finance. Loans that are not ranked first can also be called “junior debt”. A secured loan can have a second charge. This means that there is another, pre-existing loan secured against the same property has a higher priority than yours (a first charge).