Development Finance FAQs

The way development financing operates is by giving money that is especially designed to help real estate developers carry out different phases of a project.

Property developers can embark on and effectively finish real estate development projects with the help of development finance, which provides them with a number of advantages.

Obtaining the money required to pay for the expenses involved in each step of the project—from planning and land acquisition to building and completion—is known as financing a development project.

A developer’s ability to obtain development finance is contingent upon a number of criteria, such as the total development cost (TDC), the lender’s loan-to-value (LTV) ratio, and the developer’s equity commitment. Usually, development finance is given as a percentage of the total development cost (TDC), with developer equity covering the remaining amount.

We have access to lenders who will be willing to fund sites that do not yet have planning permission. This will allow developers the time needed to gain such planning permissions for intended development and/or change of use for the land in question.

Typically, lenders will not be prepared to lend as much against the value of the land – we would look to obtain a loan equivalent to 50% of the value of the land. The LTV (loan to value) may increase if there is an existing property on the site.

When planning permission has been granted we can look to raise further funds against the increased value of the development site and provide the finance you need for the build costs.

Yes. We will assist you to put together a comprehensive plan to ensure that the lenders we approach will be willing to work with you. Many lenders are happy to work with new developers but will feel more confident in supporting your project if you have thoroughly prepared a viable plan for the development. You will need to have certain information readily available, such as costs and contractor details, whether you have a fixed price contract with your builder, planning permissions amongst other important factors.

For this reason it is vital that you have the right team around you to advise you throughout the entire process.

Yes, we have access to many specialist lenders who are willing to offer secured finance packages for these types of permissions.

Lenders will be more concerned with an applicant’s scheme and experience of the development team rather than their credit rating. However, it is fair to say that having a good credit history will be preferable and poor credit may put off some lenders.

Yes. Developers looking for funding through limited companies will be required to provide personal guarantees from the directors, but other than that stipulation, the process will be the same as it is for borrowing in your personal name.

All lenders have their own unique terms, conditions and policies regarding how much they are willing to lend. Lenders will take the following into consideration when calculating loan amounts:

• The costs of the land
• Total development costs
• All applicable lender fees
• Solicitors/legal fees
• Brokerage fees (where applicable)
• Contingency costs
• Completion fees

Lenders typically offer up to 70% of the value of the land and 100% of the total build costs, however this may vary from lender to lender.

Development finance is released in instalments in line with specific stages of the development. There is an initial payment to secure the land and get the project started after which the subsequent payments will be made in accordance with the agreed schedule.

The majority of development loans will add monthly interest charges to the total cost of the loan. At the end of the loan period the loan is repaid in its entirety including the interest. Because of the way the interest is charges it is cost effective for the developer to repay the loan as soon as possible which will minimise the interest charges and reduce overall costs.

Lenders will not approve development finance until the borrower has provided a viable exit strategy which must clearly show the way in which the loan will be repaid. The most common way of repaying the loan is either through sale of the development or by refinancing. In order to establish a realistic exit strategy it is advisable to consult with an experiences development finance broker.

Developer finance is a sort of capital that is especially designed to assist property developers in the acquisition, planning, and construction of real estate projects. It is also sometimes referred to as property developer finance or development finance. Developers can utilise this type of finance to fund projects ranging from residential dwellings to commercial and mixed-use complexes. It is specifically tailored to address the particular requirements and difficulties linked with property development.

Obtaining 100% development finance is a rare and difficult situation in which a lender pays the whole cost of a development project without requiring the borrower to provide any equity. The majority of lenders, including those who provide development finance, usually demand that developers provide equity in the form of a predetermined portion of the project’s cost. By aligning their interests with the development’s performance, the developer’s participation in the project is represented by this equity contribution.

An expert in offering financial advice and knowledge exclusively for real estate development projects is known as a development finance specialist. These experts are essential in assisting developers in obtaining capital, resolving financial difficulties, and maximising the financial aspects of development projects.

Lenders usually evaluate a borrower’s eligibility for funding based on a number of characteristics, including their eligibility for development finance. While lenders may have different specific eligibility requirements.

The rules controlling lending activities in a given area and the financial regulatory framework can have an impact on how development finance is regulated, and this can differ from jurisdiction to jurisdiction. Lending and other financial services are governed by regulations in many nations in order to protect consumers, maintain financial stability, and comply with legal and ethical requirements. The kind of financial institution providing development finance as well as the type of loan activity may determine the degree of regulation.

A number of variables, such as the project’s complexity, the lender’s procedures, and the borrower’s effectiveness in supplying the necessary paperwork, might affect how long it takes to secure development financing.

Interest is added on a monthly basis, so the sooner you repay the loan, the less interest there is, which reduces the overall cost. In most instances, the loan is settled in full through refinancing or the sale of the property.

• Build to sell: the developer intends to sell, in full or in part, in order to repay the property development loan.
• Build to rent: the developer intends to rent out the property and will find long-term finance, for example, a mortgage, to repay the development loan.
• A combination of the two: the developer intends to sell part of the development upon completion and retain the apportion to be rented out.

A development term loan is a type of financing specifically designed to fund property development projects, such as construction or renovation. Unlike traditional mortgages, which are typically used to purchase existing properties, development term loans provide funds to cover the costs associated with developing a property from the ground up or refurbishing an existing property. These loans often have flexible repayment terms tailored to the specific timeline of the development project, with funds typically disbursed in stages as different milestones are reached. Development term loans are secured against the property being developed, providing assurance to the lender and potentially allowing for more favorable terms compared to unsecured financing options.

To secure a loan for a development project, several steps are typically involved. Firstly, thoroughly research lenders who specialise in development financing and assess their loan products to find one that suits your project’s needs. Prepare a detailed business plan outlining the scope of the development, projected costs, timelines, and potential returns on investment. Next, gather all necessary documentation, including architectural plans, permits, and financial statements, to demonstrate the viability of the project to potential lenders. Approach lenders with your proposal, providing comprehensive information and answering any questions they may have. Be prepared for a thorough evaluation process, which may include appraisals, credit checks, and assessments of your experience and track record in property development. Once approved, ensure you adhere to the loan’s terms and use the funds responsibly throughout the development process.