Development Finance
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Development finance is funding that can be accessed via a finance broker through specialist banks, some building societies and private lenders. This type of finance is typically made to experienced developers who have a previous track record.
How does development finance work?
Development finance is designed to help with the purchase and build costs of a development or refurbishment project. Depending on the loan and project size, lenders will release funds in stages rather than all in one go. Doing this helps developers and lenders keep track of spending and the physical progress of the project.
For larger-scale projects, the drawdown of the development funds is subject to independent monitoring surveyor (IMS) sign off. Lenders use these surveyors to check works are both on time and within budget.
For smaller-scale projects such as refurbishment, you may well be able to drawdown all the funds at once, depending on the lender. An experienced development finance broker like Mortgages for Business will be able to advise how lenders will likely approach your project.
Development finance rates
Approximate rates usually start at 5-6% a month.
Although a number of lenders advertise rates online, they’re generally estimates. Rates are assessed on a case by case basis as each development is unique and needs to be assessed accordingly.
Commercial lenders also base their loan rates on the proposition and the credibility of the borrower.
That’s why an experienced broker can be crucial in ensuring you get the best deal offered. Brokers do this by making sure your proposition is structured properly and the deal is negotiated down to the lowest possible rate.
How much development finance can you borrow?
The loan amount is based on a percentage of the gross development value (GDV) at the end of the work, currently up to a maximum of 70% loan to GDV, with a maximum of 85% of the total costs. Typically we work with developers looking for funding from as little as £250k through to projects needing finance above £25m. There really isn’t an upper limit, but a refurbishment loan is likely to be more suitable if you want to borrow a smaller amount.
Loans are typically structured to ensure that the developer’s contribution is utilised up front, with the lender providing the majority, if not all, of the build costs. It is usual for funds to be drawn down in stages against architect’s or quantity surveyor’s certificates.
