December 16th, 2013. Ben Lloyd
Development Finance FAQs
Business is booming and you need more space so you are considering building an extension on your business premises. You’ll do a makeover on the whole business of course but where will you get the money from? All your funds are being ploughed back into the business.
Head down to your local development finance broker and ask a few questions. You may be getting the hammer and nails out sooner than you think.
Frequently Asked Questions
What is development finance?
Development finance is a loan for the purchase of a site, construction costs, infrastructure services, professional costs, and the capitalisation of interest. This loan can be received for both commercial and residential properties.
How much money can I borrow?
The amount of money will depend on the lender however most development loans start at either £25,000 or £50,000 and can run into the millions. The amount loaned will be given on an assessment of the development. Issues that will affect this are the type of development, the location and the forecasted profits. In simple terms the loan is weighed against perceived risk.
How quickly will I receive the loan?
Once all the paperwork is arranged the loan will be received within a few days.
How long can I borrow money for?
Development finance can be loaned for periods of six months to two years.
Who can receive development finance?
It does not matter if you are a limited company or a self-employed individual and experience is not relevant. A loan is based on the value and profitability of a development so many lenders will even finance those who have discharged bankruptcy or have hit hard times during the credit crunch.
Which developments can be financed?
Development finance can be arranged for a number of different commercial developments from new builds to conversions and refurbishments. Locations include:
• Residential homes
• Professional practices
• Retail parks
• Leisure facilities such as gold courses
What fees and extra costs are involved?
You won’t be given money for free you will have to pay an annual rate so hire the services of a development finance broker to assure you get the best deals. Fees will be formed on a percentage of the loan lent. In most cases you can pay off the loan early and you will not be charged an exit fee.
Is 100% development finance possible?
Yes, in the right circumstances it is; however this is less common.
What is GDV?
GDV stands for Gross Development Value and will estimate the value the property would fetch if it were to be sold tomorrow in its current state. The maximum GDV is usually around 70%.
What is LTV?
LTV stands for Loan to Value this is the ratio between the value of the development and the loan. In the current climate this is rarely over 50%.
Will I need to employ the services of a solicitor?
It is always recommended to ask for legal advice before entering a contractual agreement but many financial lenders will have their own in-house team which will save you the time and hassle of finding your own.
So you’ve asked all your questions and you know all there is to find out about development finance, it’s time to starting building!
Article By Ben Lloyd
December 16th, 2013
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben