Property development finance is a specialist short-term financial product, issued to cover the costs of major property development and construction projects.
Typically repaid between 6 and 24 months after being issued, development finance enables developers and investors to complete ambitious projects without tying up significant sums of their own capital.
Why is Development Finance Used?
Most property development and construction projects are funded externally. This is to allow developers and investors to fund multiple projects at the same time, while keeping their own capital as liquid as possible.
As a strictly short-term facility, development finance provides the flexible funding property developers need to take on larger projects at short notice.
What Are the Different Types of Development Finance?
Development finance is a bespoke form of lending, which means that every loan is unique. A development finance loan can be issued for a wide variety of purposes, including but not limited to the following:
- Construction of new residential properties
- Construction of new commercial properties
- All types of building renovations and refurbishments
- Repurposing commercial and semi-commercial properties
- Purchasing and renovating derelict properties
Development finance is far more flexible than a conventional mortgage, in that it can be used to fund the purchase and renovation of derelict and uninhabitable buildings.
What is a Light Refurbishment Loan?
The term ‘light refurbishment’ typically refers to property improvements conducted to enhance a building’s aesthetics and basic functionality. Examples of which include improvements to kitchens, bathrooms and shared spaces, along with all types of decorating works.
What is a Heavy Refurbishment Loan?
By contrast, a ‘heavy refurbishment’ loan is issued for more extensive works that involve structural alterations, improvements or extensions. Examples of which include partial demolition of properties, adding walls and rooms, installation of new plumbing systems and more.
What is Ground Up Development?
This is the term used in reference to the construction of a new property from scratch, built on land that is undeveloped at the time.
How Does the Application Process Work?
Securing development finance takes place over a five-step process, as follows:
- Apply to a specialist lender with full supporting evidence of your experience, your track record in the field and detailed information on your planned project.
- An initial offer will be provided based on the information you submit, including an overview of all applicable borrowing costs.
- If you choose to go ahead, extensive checks will be performed on the viability of your project and your suitability for development finance.
- Before the loan is finalised, a formal offer will be issued outlining the final terms, conditions and borrowing costs of the facility.
- After signing the agreement, the development finance funds will be released in a series of stages, based on the progress of your project.
Can I Get Development Finance with Bad Credit?
Yes, but you will need to enlist independent finance broker support at the earliest possible stage. This will help ensure you target only the most flexible and accommodating lenders with your applications.
Be mindful of the fact that declined development finance applications can lead to further credit score damage, and that not all lenders are willing to support developers with imperfect credit.
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