Are you planning to take out development finance to refurbish or build the property from the ground up? It is important to understand what lenders look for and prepare yourself before applying for finance. There are several things to keep in mind, so you can get your development finance approved if it is the right option for you.
We always strive to make the process of accessing development finance as simple and transparent as possible. In this post, we will take you through the details that you will need to be prepared for, and the overall lending criteria development finance that are taken into account by the lenders.
Basic Requirement for Development Finance Lending Criteria
#1 Size of the loan
The size of the loan is what a lender agrees to give you. The loan size is directly dependent upon your Gross Development Value (GDV). The lender will consider how much you wish to borrow as the percentage of the GDV of the finished project. This is usually 55% of GDV but can go as high as 75% in special cases. Most development finance lenders will offer a minimum loan amount of £50,000 with potentially no upper limit. If you want lesser than £50,000, a property refurbishment finance instrument may be more appropriate.
#2 Term of the loan
The term of the loan is usually the period for which you need access to the funds. Most lenders will offer loans from 6 to 36 months, but in some cases, they may be willing to offer for an extended period. Moreover, there are no early repayment charges if you wish to pay earlier than anticipated.
#3 Exit strategy
Exit strategy defines how you wish to repay the loan. Most development finance is repaid by the sale of the end product or refinances of the scheme once finished. The lenders may ask for the proposed development plan, required permits and how much money you expect to raise from the sale of the complete property. The planned exit route must be realistic and will be verified before being accepted.
#4 Experience of the property developer
An important aspect of any development finance application is a borrower’s experience in property development. Property development is a risky and complex business, and therefore developers with adequate experience have a higher chance of approval. Lenders prefer borrowers with good experience in property development. However, this gap can be filled by consulting experienced professionals, such as project managers, brokers and builders.
#5 Credit history
Development finance can generally be raised regardless of credit history. Meaning, lenders generally do not discriminate against property developers who have less than perfect credit history. As long as you are not bankrupt or have an extraordinarily bad credit score, you can still avail yourself of development finance. However, there may be some restrictions and the borrower may have to pay higher interest rates.
#6 Location of the property
The location of the property is also a crucial factor that lenders take into consideration. Lenders usually have a list of the preferred location to fund development projects. However, they may still be inclined to fund a development project outside their designated locations if they are convinced with your development plan, your experience in the industry and your exit strategy.
#7 Planning permission and other necessary paperwork
As a part of the criteria, lenders may also want to see if you have acquired appropriate permits if planning permission is required. If you are planning to undertake a complex project, the lender may not lend the money without a proper permission plan. But, if you ensure that the project-related activities will be carried out in compliance with local planning and building laws, then funding can still be approved without planning permission.
What Information You Will Need to Provide to Increase Your Chances of Approval?
Here are some crucial details that you will need to provide while applying for development finance.
• Details of the land or building, including location, value and size of the property
• Development costs
• Expected value of the property after completion (GDV)
• Planning permission documents
• Required paperwork, such as the design and drawings of the project, project schedule, details of the professionals involved and planned exit strategy
• Details of the applicant, including the history of previous development projects and their experience in development finance
• Details of the project manager for the development project
• List of assets and liabilities of the applicant
How to Make Sure Your Development Finance Application is Approved?
Getting together all your loan requirements is one thing. Ensuring that it gets approved is another. Know that the lenders have a lot of applications to go through, hence, you must make sure that your application gets noticed quickly.
Be precise with whatever information you provide
When you meet the lender, make sure you have all the right numbers and present them properly. A well-drafted and complete application that ticks off all lending criteria checkboxes is more likely to be approved.
Be honest in your application
You will need a strong application to increase your chances of approval for the development finance. However, an application may be rejected outright if you build a good impression using false claims about your experience and project track record.
Be confident about your application
When you prepare your application, be confident about it. Know the stats by heart, describe the particulars of your project and identify specific details once asked. When the lender asks you any questions about development costs or timelines, be prepared to answer them right away.
Development finance is a quick way to raise funds, but the process can be complicated if you are applying for the first time. At BridgingFinance London, we are here to help you go through the development finance application as smoothly as possible. If your requirements don’t meet the criteria mentioned above, get in touch with us and our experts will assist you in getting your application right. Click to Blog