subject: development finance- choosing the right company and some useful tips [print this page] development finance- choosing the right company and some useful tips
So you have found your next development project and now need 100% finance. Seems revel in an easy task, however choosing the wrong lender can compensation you thousands of pounds, maybe even tens of thousands of pounds, perhaps much more!
How can this be, well the resolution is that property development loans are not like general mortgages, there are no advertised rates and the higher the level of lending the more charging models come into play, each with their own advantages and disadvantages. Put simply, every development loan is tailored to the build.
Property finance options and scenarios
There are quite a few funding options out there, too many to cover here, but here are a few scenarios to give the reader an overview.
You have cash and approach your bank. They make you an offer, theres an arrangement cost plus interest at base rate plus x% (variable) with possibly an exit share. How do you know you have a good deal, there's nowhere to compare. Did you find you had to put in more cash than you expected? Possibly affecting your ability to finance another project in tandem, were they able to offer you interest roll-up until the sales come in?
If you haven't enough cash to satisfy your bank then you are looking for a higher geared loan, different finance charging models come into play and this is where there is real potential to pay more than needed by selecting the wrong lender for your project. Here are a few options:-
* Option 1 - Base rate plus x% with exit payment based on Gross Development Value.
* Option 2 - A bridging loan rate at x% per month, maximum loan based on Gross Development Value.
* Option 3 - A mix of senior debt (first charge at base rate plus x%) and mezzanine debt (a second charge loan offered at a high end bridging rate.
* Option 4 - As option 3 but with either an exit share or profit extract with the mezzanine lender.
* Option 5 - 100% loan at base rate plus x% with profit segment.
* Option 6 - 100% loan as in option 3, but with profit extract.
The property finance answers
From just these few options you can see that electing where your property development fits in the market location with purpose needs thought and knowledge, for instance, will your project be too small, too large not profitable enough for some lenders, maybe not even profitable enough for any lender to help. This is where we come in, using the details you supply we can run the development through our own software and quickly resolution all of these questions, including which 100% property development loan option is actually cheapest for your circumstances.
