Finding property development finance for your project
There is a broad assortment of finance options available for investors, property developers, and landlords to give your next project the kick-start it needs. Nevertheless, the alternative lending market can be complicated, and it is important to understand the options that are available so that you end up with the best property development finance solution for your requirements.
What type of finance is available?
Firstly, you need to understand the different forms of finance that are available. Let’s begin with bridging finance, which is also known as development finance. This relates to a form of short-term funding that is designed to assist with development expenses.
Next, we have auction finance, which is ideal for those who want the money as quickly as possible. As you may have gathered, this type of finance is for those who purchase a property via auction, which is a quick and often cost-efficient way to do so. Most auctions require the money within 28 days of the winning bid being made. Companies who specialise in auction finance will ensure these terms are met. In fact, for established and experienced developers, there are some lenders who will provide finance prior to the auction.
What about commercial property finance? This is designed for any commercial building, from warehouses to shops. Generally, this type of finance is very similar to a private mortgage in the sense that you will borrow money from the lender and then pay it back over an extended period of time.
Which one is right for me? And how likely is it that I’ll be accepted
The type of finance you choose will largely depend on your situation. After all, auction finance is not suitable for those who are going to go down the traditional route of purchasing. Nevertheless, there are some common factors that all lenders will take into consideration when assessing your application.
The feasibility of the project is the main area of concern for lenders. The viability of your project and you as a developer will be assessed. If you do not have any experience, you will need to show that you are worthy of lending to by providing details on the people you have employed, i.e. builders, project managers, and architects. Their experience and credibility will be evaluated to determine your viability.
What will you need to secure finance? Of course, this will depend on the lender and the type of finance you are applying for. Nevertheless, in general, you will need details of any planning restrictions or Section 106s, if applicable, as well as purchase price, building regulations, a copy of the planning permission, expected end value, a breakdown of costs entailed, details of relevant professionals involved, CV of experience, a timescale for the project, and level of contingency.
Finally, how much you are able to borrow depends on your project. You need to ensure you are accurate regarding the costs your project will entail. You will also have numerous fees to consider when taking out finance, including interest costs, exit fees, and set up fees, so bear this in mind when doing your profitability calculations.
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