Business financing simplified
in a nutshell
Development finance is a funding option used to build, convert or refurbish residential or commercial property. It is often used to pay for the purchase and construction costs of a project.
Development loans can be used for any part of a project, from purchasing a site to helping fund the final phases. These loans vary in term from 6-24 months, depending on the time and the nature of the project. A minor refurbishment may not require the amount of time that a ground-up development will need, due to the scope of the works.
Most of the time a development loan will have retained or rolled up interest, where the borrower is not required to make monthly payments to the lender, but upon conclusion of the loan, the entire capital and interest will be settled.
Lenders will take charge over the property and the company borrowing, whilst the loan is active. Whilst the development is ongoing, the lender will instruct a Monitoring Surveyor to oversee the project and the funding is usually provided in tranches; which are determined by the phases of the project.
It is very important to give any lender an idea of what your exit strategy is. The most common exit strategies are; sale, using proceeds from the sale of the complete project to settle the loan; or refinance, onto a longer-term mortgage product.