Development finance its crucial to ensure you are with the right lender, depending on your plans & borrowing amounts.
Very simply put, you put down your deposit (typically 30% or higher if no other assets are involved), start the work and then have a project funded ‘in arrears’ till completion.
So you complete the initial work on the project to a pre-agreed standard, in most cases the lenders surveyor would confirm the work is done and the lender would release the next tranche of funds for the next stage of the development. This continues until the project is completed.
Then, depending on your plans, the asset(s) are sold or we refinance onto a more standard Mortgage as required. Of course lot more to it than that in regards to the underwriting, funding and planning all of which we cover off upfront.
Experience of the developer(s) is crucial to obtaining the funds at the right price and this is where we work with you, to put together the proposition for the lender to ensure your project is well funded at the right price.
Something which over the years, more and more lenders have become amenable too so certainly can be done.
Simply put, its bigger projects and bigger numbers. A draw-down bridge will typically see a maximum of 2 or 3 drawdowns on a project totalling anywhere between £100k to £250k. Development finance lenders typically start at £500,000.00 although for many a minimum initial loan of a £1,000,000.00 is the standard.
For the larger projects the lenders who specialise in these would want a minimum initial loan of £5,000,000.00 to even begin a discussion.
As mentioned above it really is crucial to ensure that you are with the right lender for your plans to ensure your project gets the financing when it needs it.
Certainly quite common to see a ‘JV’ between different parties. Whether that’s several investors putting the initial finance in or perhaps one investor and the contractor sharing the profits, lenders are more than comfortable with JV’s.
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From a finance perspective, lenders aren’t overly concerned about which structure suits best as the project underwrite is broadly the same, with the major difference being the Personal Guarantee requirements.
Really what it comes down to is what you and your Accountant would advise. Based on experience, I typically tend to see clients proceed more down an LLP route if this involved a JV between partners who don’t do this regularly, putting in different amount of finance and time. A Limited Company tends to be more for clients who do this regularly.
Certainly it is a huge benefit to have planning sign off’s in place before proceeding. Lenders can still lend of course on land/buildings without the relevant planning in place however the LTV would be impacted and for the newer developers it can be seen as a higher risk as there is no guarantee that planning will be granted, or even it is, the planning sign off’s make a project not feasible.
Certainly buying land without planning is something I would tend to see for the more experienced developers, who know the area well and what is likely to be achievable. Or perhaps those where we have suitable exit plans lined up regardless.
As always we can chat through your plans to ensure the right outcome and with potentially pre-planning enquiries and exclusivity rights that can be utilised whilst planning is sorted, there are options we can consider.
It is something I explore with clients on any property finance deal, what is the lowest cost option to proceed and putting those options in front of you.
It really does come down to experience is my view. Development Finance lenders obviously have a strong vested interest in ensuring a project remains viable and can have their uses in terms of project viability and monitoring throughout the build. Similarly I would also be looking at the numbers to ensure a viability of a project and ensure that from a mortgage perspective the end build remains ready to be Mortgaged to maintain the value of GDV of the build.
In the same vein, depending on the financing element of the project and other assets in the background this the subject project finance free and utilising other assets could overstretch your finances.
So whilst clients could potentially avoid the development finance element of a project, keeping the asset mortgage free could impact finances longer term and without a suitable broker and/or lender involved there may be decision’s made which could impact future saleability.
In terms of timescales properly packaged application to offer to completion typically takes around 6 – 8 weeks although if this needs to be quicker, with the right lender this can be catered for. In most cases interest is rolled up so there are no monthly payments to make whilst you continue with your project.
So perhaps one of the more complex areas of lending with plenty to consider and always every avenue will be explored by us to ensure that funding can be sought and your project moves forward in line with your plans.
