Development Finance: What Your Lender Needs to Know

Development Finance

All development finance solutions are unique, with the terms and conditions tailored to meet the requirements of the applicant.  A bespoke financial solution, development finance can also be uniquely cost-effective when repaid promptly.

As with all financial products and services, development finance specialists impose their own unique eligibility requirements and general qualification criteria. Some are stricter than others, just as some place heavier emphasis on certain aspects of borrowers’ applications.

Even so, the basic eligibility requirements to qualify for development finance are usually quite consistent.  In terms of the documentation and evidence your lender needs to see, you can expect most providers to request the same supporting evidence.

Detailed below is a very brief overview of what lenders need to know, before authorising a development finance loan:

1. A brief summary of your requirements

Your application should begin with a highly summarised overview of what you need, why you need it and how long you need it for.  You should include details on the type of development your project entails (new build, heavy refurbishment, repurposing a property etc.) along with the GDV of the development and the LTV of the loan you are looking to take out.

All of these will need to be supported with formal evidence, but for now just a very brief summary of your requirements is needed.

2. Information about the borrower

It has a tendency to be the make-or-break factor with most development finance loans. The credibility and viability of an applicant’s request will almost always be determined by their own experience and track record in the field.  If you have an extensive provable portfolio of successfully completed projects of a similar nature, you are almost guaranteed to qualify. By contrast, first-time developers and those with limited experience may find it more difficult to secure development finance.

Affordable development finance facilities are available for first-time developers, but can be trickier to track down. This is where the input and advice of an independent broker could prove invaluable.

3. Full project details

This is where you need to go into the finest detail about everything the project will entail. All lenders expect to be presented with a detailed appraisal breaking down the costs and GDV of the project has a bare minimum. Important details to be covered include the total purchase price of the development or plot of land (including additional fees and charges), the estimated costs of the construction/development project, total estimated finance costs and additional fees and how much profit the development is expected to generate as a percentage.

The more detailed, accurate and convincing the figures you present the better.  Even so, overstepping the mark with inflated or unrealistic estimates will not work in your favour.

4. Third-party involvement and contractor information

It is rare for even the most established developers and construction companies to conduct products without third-party support. When applying for development finance, the credibility of the contractors you plan to hire plays a major role in the viability of your application. 

Your lender will expect to see a full disclosure of who will be taking part in the project, what kind of experience they have, evidence of successfully completed projects of a similar nature and a detailed overview of the costs of hiring them.

5. Exit or refinance strategy

Nothing matters more to a development finance provider than knowing when, where and how they will get their money back. It is therefore essential to provide concrete evidence of a viable and reliable exit or refinance strategy. Are you planning to sell the units or the full development upon completion?  Is your goal to retain ownership of the development and refinance your development loan? If you are planning to sell or let out the development, have you already lined up a qualified buyer or tenants?

The strength of your exit strategy will influence not just your eligibility for development finance, but also the competitiveness of the loan you are offered.

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