What you need to know if you’re starting out in development finance

by: Brian Rubins, managing director, Alternative Bridging Corporation
  • 08/12/2016
  • 0
Old fashioned though it may be, the telephone remains a great invention if you wish to know if a lender is interested in your loan enquiry, writes Alternative Bridging's MD Brian Rubins.

However, before making that call it is good practice to learn more about the project to be financed than the town it is in.

Not all lenders have a ready-made development finance application form and where one is not offered, create your own from those used by other lenders. There is a host of information which will be wanted in due course and it would be a good idea to start collating it at the earliest possible stage.

For example, in addition to the application form, you’ll need:

  • Site / location plan, plans and elevations
  •  A copy of the planning permission and S.106 Agreement
  • Appraisal and cashflow forecast
  •  Borrowers’ CVs and details of previous projects with results
  •  Details of the proposed contractor.

Terms will vary depending on the lender but as a guide, high street banks, if interested at all, will wish to limit the loan to say 60% of development cost. Smaller and more adventurous lenders will focus on a maximum percentage of sales value, say 65%, combined with not more than 80% of cost.

Pricing will differ from lender to lender and from deal to deal but as a guide it will probably be within the following range:

  • Arrangement Fee 1% – 1.5% of the loan
  • Interest in the region of 1% p.m.
  • Exit Fee 1% – 2% of the loan or possibly the gross sales

It would be a good idea to avoid sites in remote and distant locations, listed buildings in need of significant repair and well-intended amateurs. Lenders do expect new borrowers to have had relevant training and experience and will wish to know about previously undertaken schemes.

It is not uncommon for builders to become developers and vice-versa. How construction will be procured and if there will be a third-party contractor will not necessarily determine the lender’s decision but it will certainly influence it.

Skill will come with experience but these pointers should assist.

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