Development lenders typically look at and work on applications on a case-by-case basis, but all of them will consider the following points when they assess development finance applications.
– Loan Term (1 to 36 Months) – Lenders may be flexible, but most development funding is set up with terms that range from 12 to 36 months, without attracting penalties for early settlement.
– Loan to Value (80% of GDV Maximum) – Consideration will be given to the amount you would like to borrow as a percentage of the finished project’s gross development value (GDV). 70% is usually the maximum loan to value based on GDV, but 75% or perhaps even 80% is achievable in certain instances.
– Types of Security Provided – The building or site provided as security must be suitable, with satisfactory site access, etc.
– Experience – How experienced is the developer? Have they managed successful projects in the past?
– Development Location – Is the lender satisfied with the location? Is the lender already funding other projects in the area that could mean that they will be left over exposed? Does the lender have concerns about the area likely to affect the finished development’s sale price?
– Planning Permission Requirements: Is it still required or has it been obtained already?
– Exit Strategy – All lenders want to see a viable exit strategy provided for any project undertaken.
– Project feasibility – Does the lender think that the entire project is feasible or have they expressed concerns? Concerns are usually discussed with the borrower to find out whether they can be addressed.
Types of Development Finance Borrowers
The vast majority of lenders will consider applications from:
– Sole Traders/Individuals
– Limited Companies
What Is Required to Apply for a Development Loan?
To apply for a property development loan, you require:
– Development appraisal
– Details of the development site: purchase price, value, location
– Development costs
– Details of the planning permission: what do you plan to build and what does the site have planning for?
– Gross Development Value: Evidence of the expected end value – For instance, if the development is for residential houses, you require opinions of estate agents on how much they think the houses will be sold for once completed.
– Details of all applicants, if it is a limited company then details about the directors:
2) History of previous developments: What developments were they involved in over the past 5 years?
3) How successful were the developments?
4) How much did the developments cost and how much were they sold for?
5) What was the profit for the project?
– If the borrower or borrowers has limited development experience, lenders will require the following details of the development team:
1) Who will be the project manager (their website or resume)?
2) Who will be the main contractor?
3) Company structure
4) Asset and liability statement for the company directors or applicants
How Can You Make Sure Your Development Finance Application Will Be Accepted?
Lenders receive numerous applications, so here are a few simple tips for ensuring that your application gets their attention and has the highest chances of a favorable outcome:
– Accuracy is Critical: Ensure that all the data you provide is accurate, clear, and well-presented. It will make your application look well thought out and professional.
– Avoid Inflating Any Figures: It is never a good idea to overestimate the value of a finished development. Market comparator tests and valuations will mean that lenders can easily pick up on this and won’t be impressed that you have less than accurate figures, which may fuel doubts about the rest of the information presented. Consequently, your application may be rejected.
– Know Your Figures Inside Out: It is important to know all important figures in detail, and not just the main ones. You will need a complete breakdown of costs across the project’s life, including milestones along with the points when you will need to draw down funds. Lenders might want to meet with you to discuss your application and will want to be confident that you have a good understanding of all the costs of the development.
– Avoid Exaggerating Your Experience Level: Lenders typically check out any claims made about previous projects, so don’t be tempted to try appearing more experienced than you actually are. Honesty is important, so even if it is your first project, just say so
– Lenders might be willing to work with first-time developers, but most won’t be willing to work with someone they don’t fully trust.
What Paperwork is Required to Obtain Development Finance?
Having the right information ready can really help speed up the process of arranging development finance. Important items that you will require are:
– A detailed breakdown of all the costs
– Any designs or drawings for the project
– Any planning permission details or applications, including restrictions
– Details of your previous development experience
– An Asset, Liability, Income, and Expenditure (ALIE) Summary: The lender will want to see this to ensure that you can support yourself financially whilst undertaking the development. Furthermore, they will want to make sure you can support a personal guarantee if the loan is made to a corporate structure.
– A complete schedule of work for the project along with details of all the professionals involved – for example architects, contractors, etc. You will usually find much of the information that you require on the professional’s website.
– Details of the exit strategy you have planned for the project. This would typically be sale of the development, refinance after the build has been completed, or a combination of both.