Development Finance vs. Bridging Finance – Differences and Similarities

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The most crucial and challenging part of the real estate development market is raising capital for the project. You will never have enough funds to kick-start a development project, so you will have to depend on outside funding, especially if you are a first-time developer. However, with the correct approach and strategies, it is possible to secure finances and achieve your desired investment goals. In this post, we will explore several options for raising funds for real-estate development projects.

#1 Property Development Finance

This is one of the most popular forms of finance, which is particularly used to fund development projects. With property development finance, you can raise funds to undertake large-scale residential, commercial or mix-use property development projects. This finance can be used to cover the entire development costs, including raw materials, labour and professional fees. The lender will assess the viability of the project, developer’s experience and potential returns before granting the loan.

#2 Personal Loans

Unlike other traditional loans, personal loans don’t require any asset or property as collateral to secure funds. Personal loans are granted based on the borrower’s credit rating, income and financial history. This loan provides a one-time payment to the borrower to cover construction expenses and it is repaid, along with interest, in fixed instalments over the term of the loan.

#3 Crowdfunding

Crowdfunding has gained popularity as a great financing solution for property development projects. This method involves acquiring small contributions from a large number of people through various platforms. You need to propose the project to target inventors who are willing to contribute funds in exchange for a share in the project or other rewards. For crowdfunding to be successful, it requires an effective marketing strategy and a strong project proposal.

#4 Equity Finance

Equity finance allows property developers to raise finance by giving shares of ownership to potential investors in exchange for funds. Investors who buy shares become partial owners of the project and share in its profits. The UK has a solid equity financing ecosystem, offering diverse options for property developers and investors to raise funds and fuel their growth.

#5 Buy-to-let Mortgage

If you are planning to create a rental income from your property development project, you may qualify for a buy-to-let mortgage. Most buy-to-let mortgages are interest-only loans, meaning the borrower is required to pay only the interest every month. The loan amount is usually paid at the end of the term. The interest-only aspect of this loan makes it an ideal choice for anyone looking to build a property to rent it out.

#6 Joint Venture

A joint venture refers to two or more parties collaborating to undertake a development project. In the joint venture, the parties invest their skills, resources, time, and capital to share the risks and gains of the project. For instance, if some invest their capital, others invest their time and resources, and the profits can be shared based on suitability for all partners. The partners could be property investors, landlords or other developers.

Although securing funds for property development can be challenging, with strategic planning, creativity and persistence, it can be achievable. By understanding your funding needs, you can explore your bridging finance London UK options and choose the one that meets your property development goals. However, if you are unsure about any option, it is strongly advised to seek professional advice from specialist financial advisors and industry experts who can help you go through the complexities of property development finance in London effectively. We hope these strategies help you access the necessary funding and bring your development vision to life.