Many property developers and investors seek development finance to fund their development projects in the UK. Although development finance can give you access to a large sum of money in a shorter time period, it can quickly become the most terrible financing if you miss an important step in the process. There are some mistakes that even the most professional developers end up making, which can lead to application rejection, delays in development or complete project failure.
8 Mistakes to Increase Your Chances of Successful Completion
Mistake #1 Failing to research the market
Many developers often make the mistake of not researching the market adequately and speaking with only one or two lenders. That means there is almost zero chance that you will find the best available deal in the market. But, if you ask 10 lenders about the same deal, you will get 10 different answers and 10 different pricing structures.
By researching the market and consulting non-bank lenders, you have far better chances of securing the best deal on development finance. You can secure development finance at the best available interest rates with flexible lending criteria.
Mistake #2 Lack of a strong development plan
Any lender would want to know the developer’s vision when they apply for development finance. Showing up to the lender without a credible development plan will most likely reduce your chances of getting your loan approved. Any lender would be hesitant to grant financing to a borrower who is not confident about his vision.
Hence, create a solid development plan before you walk up to the lender. Demonstrate how much you intend to invest in the property and what returns you expect. Show a detailed breakdown of the project cost, planning permission, development timeframe, market analysis, work schedule, the professionals involved, profit projections and a planned exit strategy. Have all the documents ready that support your arguments.
Mistake #3 Failing to consider the interest rates
When you plan to secure development finance, it is important to keep in mind that you will need to repay the loan and the interest rates. Many property developers and investors fail to take the interest rates into account while calculating their repayment plans.
It is crucial to understand that interest rates vary depending on the size and term of the loan. Therefore, get interest rates from several lenders and compare them before you apply for finance. Also, take into account your ability to repay the loan amount plus interest at the end of the development project.
Mistake #4 Borrowing more than you need
When raising funds for development finance, it is common to feel enticed about borrowing more money than you need. If you document more development cost than actual in your application and if you fail to justify the cost, the lender may reject your application right away.
Furthermore, if you request to borrow more money than you can actually afford to pay back, it can get you into financial trouble. Hence, apply only for the amount you need and make sure you have a proper exit strategy in place to repay the loan.
Mistake #5 Exaggerating details in the application
In the urge to get the application approved as smoothly as possible, often developers try to exaggerate facts and figures in the application. Know that anything you mention in the application will be verified by the lender. If you are using any data in your application, the lender would want to know how you arrived at those estimates.
If the lender discovers that you have tried to mislead them in your application, they will reject it outright. So, before you submit your application make sure you check all the details thoroughly, and that they are presented in a simplified and professional way.
Mistake #6 Choosing the wrong vendors
While partnering with the right vendors can strengthen your case for taking out development finance, choosing the wrong ones can cause more harm than good. This includes everyone from project managers to contractors, interior designers and other service providers. Choosing the wrong partners may result in disputes and the site may get repossessed.
When you involve anyone in your project, clearly communicate their roles and what to expect from the development project. If they don’t agree with your terms, then it is better to let them go. Partner with the people who commit to supporting you throughout the project term.
Mistake #7 Ignoring the skills and knowledge gap
Risk management, team management and decision-making are some of the skills that a developer needs to possess to go ahead with property development. All these skills will be required in different stages of development, such as building, buying and selling. As a developer, you likely need to have these skills.
The most successful developers are the ones who are willing to take a realistic view of their experience and knowledge gaps and try to fill them. This is normally done by collaborating with other businesses that you will need during the development process.
Mistake #8 Failing to understand the terms and conditions
Many property investors underestimate the importance of carefully reading the finance agreement. Unaware of the terms and conditions of the development finance, they agree with what the lender says, which could lead to serious complications down the road. It may not be apparent at first, but many lenders levy high charges, which can increase the overall cost of borrowing.
Hence, it is crucial to thoroughly read the terms and conditions before you apply for development finance. If you are not sure about what’s there in the terms, you may hire an expert financial advisor who can help you go through the application.
As you can see, these are some common mistakes that property developers tend to make while applying for development finance lenders. If you stay clear of these mistakes, you can greatly increase the chances of your bridging finance in London getting approved and achieving your desired development goals. Click to Blog