Property development finance is a form of short term funding to support and fund development projects, either in stages or as one lump sum release. This creates a flow of cash into your project as and when you need it most. Whether you are looking to develop a residential, commercial, or mixed use project, development finance can help you take that step.
Development finance typically requires risk assessments and using the property being developed as collateral for the loan. Development finance also comes with interest rates and terms that vary based on factors such as project type, the level of developer experience, and the strength of the business’ credit score.
Development finance can be adapted to provide you with access to a fixed lump sum, or instalments paid in stages. It helps you to keep on top of your budget whilst potentially giving you the flexibility to borrow more should additional costs arise.
Development finance typically lasts for just 12 to 24 months and is usually repaid on an interest only basis, plus any arrangement fees which are agreed with you in advance. This is particularly beneficial when it comes to preserving your working capital as the total amount borrowed will be repaid at the end of the agreement when the sale is eventually made.
Development finance can be a great option for anyone involved in or looking to take on a project to construct, build or improve a property. It primarily caters to property developers, and professionals within the property industry, however it is possible to get development finance without prior experience.
Development finance is useful for a person or business looking for funds to acquire land, finance construction or renovation projects, and cover associated costs, such as materials, permits or labour. Essentially, development finance supports your property goals, making it easier to buy, improve, and transform properties while contributing to the growth of your business.
To apply for development finance, it’s likely you will need the following:
You will also need to provide the following documents:
How much you can borrow from a property development finance lender will depend on a percentage of the Loan to Gross Development Value (LGDV) and the loan to cost ratio (LTC).
The amount can vary depending on the lender and the project, but typically you could look to borrow:
Access the financial resources needed to support your next development.
One of the ways you can finance a property development is by applying for a loan with Capitalise. We work with a number of specialist property development lenders, so our funding specialists can help match you with the right option for your business.
Some development finance lenders will have an exit fee, this is typically 1-2% of the total loan amount. However it will depend on the individual lender whether they have an exit fee and how much this may be.
Yes, having a well-defined exit strategy is important when applying for a property development loan. Lenders want to know how you plan to repay the loan once your project is completed. Common exit strategies include selling the developed property, refinancing with a mortgage, or leasing the property for rental income. A clear exit strategy demonstrates to lenders that you have a plan to generate the necessary funds for loan repayment.
Many lenders will require evidence of planning permission when considering an application for development finance. This is because having the necessary permission in place reduces the project's risk and increases the likelihood of successful completion. Before seeking development finance, it's a good idea to obtain the required planning permissions and provide this documentation as part of your application.
Development finance and bridging loans are similar as they both offer a short term finance solution. A key difference between the two is that a bridging loan can be used for a variety of business purposes, while a development loan is only suitable for a property development project. Another difference is that a development loan can involve funds being released in increments, at different stages of the development. Whereas with a bridging loan, funds are typically released as a lump sum.
While you could get development finance with bad credit, it could be more challenging as lenders typically consider your business credit score when assessing your eligibility. Having bad credit could limit your options for development finance or subject you to more expensive rates, so you should consider steps to improve your credit score or have your credit score reviewed before applying for development finance.