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Development projects are funded in layers. Senior debt sits first, secured by first mortgage, and is the cheapest money. Equity sits last and takes the first loss. Between them there is often a gap, because the senior lender will not advance enough and the developer does not want to tie up more cash. There are two ways to fill that gap with debt: add a second, junior loan, or find a senior lender willing to stretch.
How stretched senior works
The lender takes a first mortgage over the site and advances a larger share of the project than a conventional senior facility. The loan is still drawn in stages against certified work, exactly like any development finance facility. The difference is the leverage and the price.
| Bank senior | Stretched senior | |
|---|---|---|
| Typical leverage | 60 to 65% of cost | Higher, up to around 70% of end value |
| Security | First mortgage | First mortgage |
| Presales | Usually required | Reduced or none |
| Pricing | Lowest | Blended, between senior and mezzanine |
| Documents | One facility | One facility |
Leverage limits on this site are up to 70% of gross realisable value for development finance, which is the benchmark a stretched senior facility is measured against.
Why developers use it
- Simplicity. One lender, one valuation, one quantity surveyor, one legal bill. No intercreditor deed to negotiate between two lenders.
- Speed. A single credit decision rather than two that must line up.
- Control on a bad day. If the project hits trouble, there is one lender to deal with, not a senior and a junior with different interests.
- Less equity. Capital can be kept for the next site.
What it costs
The rate sits above bank senior debt and below mezzanine. The useful comparison is the blended cost of the alternative. A senior loan at a low rate plus a mezzanine layer at 14% or more often averages out close to a stretched senior rate, and the second structure carries two sets of fees.
When it does not fit
Where a bank facility is available, presales are strong and the developer has the equity, plain senior debt is cheaper. Where the gap is small and the senior lender is already committed, a mezzanine layer behind it may be simpler than refinancing the whole facility. The side by side is in stretched senior vs mezzanine.
What the lender assesses
The feasibility, the end value, the builder and the fixed price contract, the developer’s record, the planning approvals and the exit. Borrowers are companies and trusts building for business or investment purposes.
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Get matched with a funderFAQ
Is stretched senior more expensive than bank senior debt?
Yes. The rate is higher because the lender is taking risk a bank would leave to a mezzanine lender or to your equity. It is usually cheaper than mezzanine on its own.
Do I still need presales?
Often fewer, and sometimes none. Non-bank lenders place more weight on the end value, the builder and the exit than on a presales quota.
Who offers stretched senior debt?
Non-bank and private development lenders. Banks generally do not lend at these leverage levels.