Approaching the world of development finance for the first time can be a challenge. There’s quite a lot you need to know before you can get started. Most people don’t have the specific knowledge they need to get to grips with development finance, which is why we’re going to take a look here. We’ll be going over what development finance is, how it can help, and give you all the information you need to make the correct decision. With that being said, let’s get into it.
What is Development Finance?
Okay, let’s look at the absolute basics. What’s development finance?
This type of finance is secured as short-term finance. You use it to fund conversion, heavy refurbishment or the development of a property. You can use property development financing for a lot of different projects, all of them building-related. However, this type of finance is most commonly used for those heavier projects because they’re the ones that need substantial building work.
The projects which aren’t as heavy, the ones that require you to have some lighter building work, need a bridging loan because it’s the better choice overall.
How Does Development Finance Work?
It’s important to understand that development finance can be pretty complicated. It is much more complex than a typical residential mortgage because the funds are generated upfront and then further distributed throughout the build.
Typically, the money is advanced against the estimated value of the property, and most providers are happy to provide up to 65% of the site value to get going.
Once you have got started with the project, you’ll find out the rest of the money is given to you at agreed periods during the project, and most providers are happy to provide you with the complete 100% of the cost. However, to get this process to work, your site will have to be inspected again, independently, by either a monitoring surveyor or a representative of the provider.
If this third party is happy that the work you are doing is being done to a suitable standard and that there is enough value in the site to move forward, you will find that the money is released to you quite quickly. There will also be an obligatory re-inspection once the project has been completed. Every time you want to get access to more of the money, you will also have to submit to another inspection.
Why is Development Finance Useful?
There are a handful of benefits to development finance that make it a valuable asset for your company. One of the significant considerations is that there is no limitation on how much money you can borrow. In quite a few cases, it’s possible to get 100% of all of the cost of the project, which means that you can finish the project without having to spend a lot by yourself.
There is also the ability to pay back the money quickly, little interest challenges to face, and quite a lot of flexibility. You will be given enough money to start the project and get quite far in before the next block of funds is released to you, which means that it’s easy to make good progress so long as you follow the rules laid down by the provider.
Development finance can be the best way to properly develop a project that everybody else might be struggling to invest in. Derelict buildings, abandoned properties, projects that initially appear to have limited value are all potential candidates for development finance.
Development finance can be a very useful tool for a business or a company to start a building project, owing to the fact that it is easy to secure funding, and there are many different plans and deals to generate a flexible source of finance. It’s very straightforward to get the best possible results.
For best results, make sure that you look at all of the different providers because there is a broad selection of different companies that are prepared to offer development finance loans. It’s important to shop around to get the best results and to understand that there will be some repayment costs, but when compared to other traditional forms of finance, this is much lower than normal.
To find out more about development finance and how your company may benefit, get in contact with Funding Bay.