Development finance: what your lender needs to know

All development finance solutions are unique, with terms and conditions tailored to suit the applicant’s requirements. A tailor-made financial solution, development finance can also be extremely affordable if repaid in a timely manner.

As with all financial products and services, development finance specialists impose their own unique eligibility requirements and general qualification criteria. Some are stricter than others, just as some place greater emphasis on certain aspects of borrowers’ claims.

Even so, the basic eligibility requirements to qualify for development finance are generally fairly consistent. In terms of the documentation and evidence your lender needs to see, you can expect most vendors to require the same supporting evidence.

Below is a very brief overview of what lenders need to know before authorizing a development finance loan:

1. A brief summary of your needs

Your question should start with a highly concise overview of what you need, why you need it, and how long you need it for. You should include details on the type of development your project entails (new construction, heavy renovation, reuse of a property etc.) along with the GDV of the development and the LTV of the loan you are looking to take.

All of these will need to be backed up by formal evidence, but only a brief summary of your needs is needed for now.

2. Information about the borrower

It has a tendency to be the deciding factor with most development finance loans. The credibility and feasibility of an applicant’s request will almost always be determined by their experience and background in the field. If you have a large demonstrable portfolio of successfully completed projects of a similar nature, you are almost certain to qualify. Conversely, first-time developers and those with limited experience may find it more difficult to obtain development funding.

Inexpensive development finance structures are available for novice developers, but they can be more difficult to track down. This is where the input and advice of an independent broker could prove invaluable.

3. Full details of the project

This is where you need to go into the finest detail about everything the project will entail. All lenders expect to be presented with a detailed appraisal that cuts costs and the project’s GDV has a bare minimum. Important details to be covered include the total purchase price of the development or plot of land (including additional costs and charges), the estimated costs of the construction / development project, the estimated total financial costs and additional fees, and how much profit is expected. for development generate as a percentage.

The more detailed, accurate and convincing the figures you present, the better. Even so, overstepping the line with inflated or unrealistic estimates won’t work in your favor.

4. Third party involvement and contractor information

It is rare for even the most established developers and construction companies to conduct products without third-party support. When applying for development funding, the credibility of the contractors you intend to hire plays an important role in the viability of the application.

Your lender will expect to see a full disclosure of who will be taking part in the project, what kind of experience they have, evidence of successfully completed projects of a similar nature, and a detailed overview of hiring costs.

5. Exit or refinancing strategy

Nothing matters more to a development finance provider than knowing when, where and how they will get their money back. It is therefore essential to provide concrete evidence of a viable and reliable exit or refinancing strategy. Are you planning to sell the units or the entire development upon completion? Is your goal to keep development property and refinance your development loan? If you are planning to sell or rent the development, have you already lined up a qualified buyer or tenants?

The strength of your exit strategy will affect not only your eligibility for development finance, but also the competitiveness of the loan being offered to you.

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