Finding finance for a 6 unit property development in Bristol
Many people use their personal bank for their business needs. While this may seem perfectly normal, the reality is that when it comes to raising finance for property development using a high street bank can be expensive and also can restrict flexibility.
In this example a Bristol based property developer with 12 years experience was looking to finance the purchase of land and build costs for a 6 unit development with a gross development value of £800,000. The land cost was £220,000 and the anticipated build cost was £350,000. The total finance required was £280,000 for a 18 month term.
The client's bank was prepared to lend up to 60% of the project costs (including land acquisition, solicitor & professional fees, insurance, bank finance interest and development costs). However the bank wanted the client to put in all their cash first ie. they were prepared to fund the project but only on a strictly in arrears basis. Now this is a big deal! So in this case the project cost was £620,000 (£220k land cost, development fees of £360k, £20k bank interest & fee, £10k professional fees and £10k selling fees). So the client was being asked to put in £248,000 up front to satisfy the 40% requirement.
So with the land purchased on this basis the client would have a cash flow issue when it came to building the units - the bank being prepared only to make their final payment on completion of the build. While credit agreements can be arranged with building suppliers this is not an ideal situation.
Fortunately the client came to us and we were able to find funding for the gross development value of the whole project with funding being made available at the kwy stages of the build.