How to Get Finance for Property Developers

More Info Below

If you want to develop a property, you may well need access to considerable capital. Property development is not inexpensive, and if you want to achieve your desired result, you may have to overcome substantial costs.

If you are someone who has never developed a property before, it can be understandably overwhelming trying to figure out where to start.

At Bridging Finance Solutions, we have worked with countless property developers to help them achieve their development goals. We understand the monetary investment required for a development to be a success. 

Read on to learn more about how to fund property development projects.

 

Why Might a Developer Need Finance? 

How to Get Finance for Property Developers – Bridging Finance Solutions

People tend to have one big question concerning property development: Why would a developer need finance? 

The answer is quite simple. No matter the size of the property development, a significant cash injection will be required for the process to run smoothly. 

Without the necessary funds, you won’t be able to complete your development project, and if you cannot provide proof that you can access funds, you may not be able to secure additional financial backing.

 

Property Development Finance

Before we discuss the details of property development finance, we understand that certain terminology may be unfamiliar to anyone with little experience in the industry. To ensure that all the information you receive is clear, we strongly recommend that you review our property development glossary. 

Property development finance offers a range of financial options for funding property-related projects, such as refurbishment, large residential or semi- commercial developments, or even small-scale developments. 

You may consider applying for development finance to cover the following costs:

  • Construction or renovation expenses. 
  • Land purchase or acquisition. 
  • Professional fees.
  • Marketing and sales preparation post-development. 

 

When selecting which property development finance type is right for you, you must consider many factors, including the flexibility of the loan, the loan-to-value ratio, and even the term length.

If you are unsure about the terms of the finance solution you are enquiring about, be sure to ask the provider for more information, as they will be able to advise you of important factors in the finance agreement, such as interest rates and term length.

 

The Most Popular Types of Financing for Developers

How to Get Finance for Property Developers – Bridging Finance Solutions

If you are still deciding which development loan option is best for you, here is a short explanation of the most common types of financing available to developers.

 

Bridging Loans

One of the most popular financing options available is bridging loans. These short-term solutions bridge finance gaps for anyone purchasing or developing a property until they can find a more long-term financial solution. 

Bridging loans are ideal for anyone who needs short-term cash flow, whether due to a purchase deadline or because their finances are locked up in another commitment. 

They are also a popular solution for anyone who needs financing to refurbish a property before placing it on the market.

 

Why do People Choose Bridging Loans?

One of the main reasons why bridging loans are so popular is because of their fast approval. Unlike typical loans, you can receive confirmation for a bridging loan in a matter of days, making it a great solution for anyone who requires quick funding.

Another reason why people tend to pick bridging loans is because they are short-term loans. If you were to take out a typical mortgage, a typical loan period is 25 years,  when you obtain a bridging loan, you develop an exit strategy that should happen within 12-18 months. 

If you would like to know more about bridging loans, be sure to check out our FAQs.

 

Development Loans

Development loans are usually used for large-scale property development projects. For example, this may be a new build house or major refurbishments of an existing property.

Suppose the project that you are planning has significant construction elements, or you are financing both land acquisition and building costs. In this instance, you may require a significant cash injection, which is attainable with a  development loan.

 

What to Consider When Taking Out a Development Loan

Before committing to a development loan, you have to be aware that the loan is based on the Gross Development Value (GDV), which is the estimated market value of the project upon completion, so before you apply for anything, ensure that you understand the value of the project. 

You will not be accepted for this loan type unless you have a comprehensive development plan that includes estimated costs and timelines.

 

Commercial Mortgages

How to Get Finance for Property Developers – Bridging Finance Solutions

You may be more familiar with this type of financing solution. A commercial mortgage is a loan used to purchase, develop, or refinance a commercial property. It usually applies to developments such as apartment complexes, offices, or shopping centres. 

This financing type is perfect for developers intending to lease out the property.

 

What to Consider When Applying For a Commercial Mortgage

A commercial mortgage may not be the best solution if you are looking for a short-term loan solution. Unlike with a bridging loan, where you usually repay within a year, you can expect to have a repayment range of about 5 to 25 years, which is a substantial commitment. 

Lenders will also consider the potential rental income during the approval process, so you need to have projections for this in place before applying.

 

Private Equity and Investors

Private equity and investors refer to raising capital from investors to acquire land or make major renovations. Investors will invest equity into the development with the expectation of receiving a return on their investment or having a share of the property. 

This is an ideal solution for anyone wishing to share the financial burden of the investment and reduce personal risk.

 

Key Features of Private Equity and Investor Funding

One of the key benefits of private equity is that there are no monthly repayment requirements; profits are shared upon project completion.

You should consider that you must present a compelling business plan to attract investors.

 

Key Steps to Securing Finance

How to Get Finance for Property Developers – Bridging Finance Solutions

Now that you know more about your financing options, you may wonder what preparation is required before you apply for financing. Here are the key steps to secure finance.

Creating a Business Plan

A robust and meticulously crafted business plan is essential for obtaining property development finance. Lenders and investors require undeniable proof that the project is viable and profitable.

If you are not sure what should be included in a business plan, ensure you include the following details: 

  • Detailed project description 
  • Cost breakdown
  • Exit strategy
  • Timelines of development
  • Profit projections based on market research

 

By creating a detailed business plan, you can demonstrate professionalism and reduce the perceived risk of the investment.

 

Review Your Financial Situation

Developers must assess their financial situation before seeking loans from lenders. Understanding their financial standing can significantly impact the terms of the loan and their eligibility. This self-evaluation can help developers make informed decisions and improve their chances of securing favourable loan conditions.

Lenders will consider the following financial factors: 

  • Credit history
  • Available equity 
  • Cash flow

 

Research Financing Options

As we have already established, different types of financing are better suited for different types of projects. As a developer, it is your job to ensure that the financing option you select aligns with your specific needs.

You should consider whether or not the terms of the loan align with what you are able to complete and whether you will be able to meet repayment deadlines and cover fees. 

You should also consider flexibility, as developments can be unpredictable. You want to ensure that your financing is completed on your terms.

 

Ensure You Have Essential Documents Prepared

Before making any agreements, lenders require that you provide the documents that outline the project’s feasibility and your ability to repay any loan you take out. 

When you choose a financing solution, the provider should outline exactly what documentation is required for acceptance.

Some documents that you should consider preparing include: 

 

  • Proof of identity and address.
  • Detailed business plan (as outlined above).
  • Proof of ownership or purchase agreement for the property or land.
  • Evidence of planning permission (if applicable).
  • Financial statements, including bank records and credit history.

 

By having this documentation already prepared, you will make the application process much smoother.

 

Contact Specialist Lenders 

Engaging with a lender specialising in property development financing can significantly enhance your project’s success. These expert lenders are well-versed in the intricacies of property development and can provide tailored guidance that meets your specific requirements.

When approaching a specialist, it is important to be transparent about your project’s potential risks, with solutions for mitigating these potential risks.

At Bridging Finance Solutions, we have worked with various developers. We ask that all developers we lend to be as transparent about the project as possible.

 

Why You Should Work With Specialist Lenders

If you are still unsure whether to work with a specialist lender, consider the following benefits. 

First, working with a specialist, principal lender has a much faster approval process than working with traditional banks. Thus, you can have the money you need within a matter of days, making them a great solution for a quick cash injection. 

They can also provide a customised loan structure that aligns with the project’s timeline, allowing you to meet any deadlines you may have.

 

How Bridging Finance Solutions Can Help You

Bridging Finance Solutions Team

Securing financing is about more than meeting eligibility criteria; it’s about presenting yourself and your project as a  reliable investment. By following these steps and partnering with a trusted specialist like Bridging Finance Solutions, developers can secure the funding they need to bring their vision to a successful financial conclusion.  

If you would like to details about a loan with Bridging Financial Solutions, fill out our application form today. 

Share this page