Capital Stack
Last reviewed 13 June 2026 by Nick Lim, finance broker (FBAA).
Capital Stack is the full layering of funding in a project or purchase, ordered by repayment priority: senior debt sits at the bottom with first claim, mezzanine finance in the middle, and equity at the top carrying the most risk and return. In a typical Australian development, senior debt funds up to around 65 percent of total development cost, mezzanine stretches it toward 80 to 85 percent, and the developer's equity covers the rest. Gaps between the layers are often filled with equity gap funding or a second mortgage.
Why Capital Stack Matters
The capital stack decides who gets paid first and who carries the risk, which shapes the cost and structure of a deal.
- Layers funding by repayment priority and risk
- Senior debt ranks first and is the cheapest
- Mezzanine finance sits between debt and equity
- Equity ranks last and carries the most risk
- Gaps can be filled with equity gap funding or a second mortgage
Common Features of Capital Stack
- Senior debt as the base layer to around 65% of cost
- Mezzanine or subordinated debt in the middle
- Equity at the top
- Each layer priced for its risk
- Common in development and commercial finance
Official reference: asic.gov.au
What is a capital stack?
The layering of funding in a deal by repayment priority, from senior debt at the bottom to equity at the top.
Why does the capital stack matter?
It sets who gets repaid first and who carries risk, which drives the cost and structure of the deal.
Where does mezzanine finance sit?
Mezzanine finance sits between senior debt and equity, costing more than debt but less dilutive than equity.
How are funding gaps filled?
What ranks first in the capital stack?
Senior debt, which has first claim on cashflow and security.