Funding Options to Finance a Property Development

Securing the funds needed to finance a property development can be approached in a variety of ways. You can seek the support of a major bank, you can set your sights on a specialist lender or you can pitch your project to private investors.

Which of the options available will be determined by the size, nature, value and complexity of the project; your experience, track record, financial outlook and preferred exit strategy could also play a role.

For most developers, the preferred funding options for property developments are specialist development finance, bridging loans, mezzanine finance and joint venture finance. Each of which has its own unique features and points of appeal, as summarised below:

Bridging Loans

Bridging finance is ideal for covering the property development costs on a strictly short-term basis. A bridging loan is a popular choice for funding renovations and refurbishments of existing properties, with the intention of selling upon completion.

Bridging loans can be comparatively easy to arrange – eligibility is assessed on the assets available to secure the loan and the applicant’s exit strategy. Past history, financial status and credit scores are rarely deal-breakers when applying for a bridging loan.

With a bridging loan, the capital can often be accessed within a matter of days, and is usually repaid no more than a few months later.

Development Finance

Specialist development finance is a bespoke product, tailored to meet the exact requirements of each individual applicant. Development finance is usually available exclusively to experienced developers with an established track record.

Also designed to be short-term in nature, development finance is suitable where larger sums of capital are needed to cover the costs of more ambitious projects. Development finance differs from bridging finance in that the funds are released by the lender in a series of stages, as the project progresses.

Though the application process can be quite complex and time-consuming, development finance can be even more cost-effective than a bridging loan.

Mezzanine Finance

Mezzanine finance comes into play where shortfalls occur in the capital required to carry out or complete a project. Issued as a second charge loan, mezzanine finance is considered a higher-risk product by the lender.

Mezzanine finance is only ever granted to developers with extensive experience and a proven track record in their field. Interest rates and overall borrowing costs will usually be higher, given the additional risk involved in issuing a second charge loan.

Essentially, mezzanine finance is used to ‘top up’ a primary development finance product, where the initial funds sourced to finance the project are insufficient to cover its overall costs.

Joint Venture Finance

Joint venture finance (aka joint venture funding) is similar in nature to mezzanine finance. This is where a third-party investor or provider puts an agreed amount of capital into the project, in return for a percentage of the profits generated upon its completion.

Joint venture finance is an option usually limited to experienced developers with an established track record. This is due to the fact that the capital is typically provided in the form of a second charge or even third charge loan. In the event that the project is unsuccessful, the capital’s provider would not receive their money back until the first and second debts secured on the development were settled.

But as joint venture providers almost always have extensive knowledge and experience in property developments, they rarely back projects that do not have a near-100% probability of success.

Click here to visit developmentfinance.com where you can learn more about how you can be assisted.

About the Author:Craig Upton supports UK businesses by increasing sales growth using various marketing solutions online. Creating strategic partnerships and keen focus to detail, Craig equips websites with the right tools to rank in organic search. Craig is also the CEO of iCONQUER, a UK based SEO company and has been working in the digital marketing arena for many years. A trusted SEO consultant and trainer, Craig has worked with British brands such as UK Property Finance, Serimax, djkit and also supported UK doctors, solicitors and property developers, gain more exposure online. Craig has gained a wealth of knowledge using Google and is committed to creating new opportunities and partnerships.

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