What is development finance?
Many are now turning to development financing as a source of funding, with the British property finance market on the rise. This guide will explain what development finance is, and how you can use it.
What is property development financing?
Development finance is a short-term financing option that allows for cash injections to help with the construction and renovation of commercial or residential properties. This finance category includes term loans, mortgages, and mezzanine financing.
What is development finance?
Developer finance is where the lender provides money to buy the property and money to finish the building work.
Many lenders, such as Loan Corp, offer initial loans based on the purchase price. The lender will then finance 100% of the cost of work but will provide arrears.
The client must pay the first portion of the costs once construction work has begun.
The developer will submit an invoice the following month to the bank surveyor. He will verify that it is correct, and the bank will fund the client once the invoice has been confirmed. This is called in arrears. This means that the construction is complete and can be sold or refinanced.
Development finance is different from traditional loans. It takes into account the property’s value. This allows investors and builders to fund projects that are otherwise impossible or too expensive.
How do you finance a development project?
You will need to gather a professional team when applying for development finance. This usually includes an architect, structural engineer, and planning consultant. This will help lend credibility to your loan request and will be required for your development plans.
Although lender requirements may vary, the following are the basic requirements for most lenders.
- An in-depth cashflow analysis
- With the contractor, a detailed schedule of work will be provided
- Week by week, a detailed timeline of development plans
- Confirmation of planning approval. There are conditions you must meet
- before you can begin the build. Lenders will need to verify that these have been met before they release any funds.
How to obtain development finance
It can be difficult and time-consuming to apply for development finance. Many businesses use a broker or finance specialist because it is easier.
The broker’s role in the process is to assist you and make sure that your due diligence is done properly, is robust, and is able to stand up to questioning. The broker can help you to sense-check the information. This saves both time and money for you.
What is a development financing institution?
A development finance institution can be described as a lender or funding partner that offers finance to finance the construction of properties.
Senior lenders, which are those who lend most of the money without depositing from clients, fall under this category.
Alternative lenders may also offer development finance as part a broader product remit. There are two types of lenders: lenders that specialize in finance and lenders who are more specialized in development finance.