Development Finance Criteria
Are you thinking of taking out a development finance loan to renovate or refurbish your property? You can make the process easier by understanding the basic development finance criteria.
While lenders evaluate applications on a case-to-case basis, there are baseline standards they go by that you need to know when applying for development loans.
General Development Finance Criteria
Here are the general development finance lending criteria to prepare for if you plan to apply for a development finance bridging loan.
- Loan Size
- Term of the Loan
- Type of Security Offered
- Loan to Value Percentage of GDV
- Experience of the Developer
- Permits and Other Pertinent Documents
- Project Feasibility
- Exit Strategy
Development Loan Size
Most development finance lenders offer loans amounting from £100,000 to as much as £1 billion. We at The Bridging Loan Company can help you secure loans from £10,000 without a ceiling. Our competent team of financial advisors can match you with the most suitable lender to finance a wide range of development projects, including:
- Apartment complexes
- Care homes
- Student dormitories
- Large residential developments
Term of the Loan
The term of your property development loans can run from 1 to 36 months. Usually, lenders are amenable to loan terms from 12 to 36 months. You won’t incur any early settlement penalties as well as you can with refurbishment loans, for example.
Type of Security
The lender needs to see acceptable security offered for development finance, such as residential real estate or apartments.
Loan to Value Percentage of GDV
The percentage of the gross development value (GDV) of the completed project is also an important consideration. Lenders can give borrowers a loan amounting to a maximum of 70% of the GDV, yet some can go as high as 75% to 80%.
Use our development finance calculator to give you an idea of the rates that you can expect to pay.
Experience of the Property Developer
The property developer’s experience and track record also have a bearing on the success of your loan application.
Lenders generally do not discriminate against property developers or house builders who have a less than satisfactory credit history.
As long as you’re not bankrupt or have an extraordinarily bad credit history, you can still have a development finance loan approved but with certain restrictions and higher interest rates.If you’ve had any bridging loans previously it may help with your application approval.
Lenders also look at the location and usually have a list of preferred locations to fund development projects. However, they can still fund your development loan outside of their designated locations if they’re convinced of the completed project’s value.
Permits and Other Pertinent Documents
Did you obtain relevant permits and documents? A lender may need to see planning permission details on hand as part of their criteria.
Funding can still be approved without planning permits, as long as you ensure that the project-related activities during the loan term are compliant with the pertinent laws on local planning and building regulation.
You need to be ready to answer the lender’s questions and concerns on the project’s feasibility. Developing a feasibility study will make the process easier.
Lenders will want to sit down with you and arrange a viable exit strategy.
Types of Development Loans Borrowers
What type of property developers do lenders usually approve development finance applications? They consider the following:
- Sole Proprietors
- Limited Companies
- Pension companies
What Do You Need to Prepare for a Development Finance Application?
- Development site details, including purchase price, location, and value
- Appraisal of the development project
- Costs associated with the project
- Planning permission details
- Gross Development Value – documentation/experts’ opinion of the expected value of the completed property development project
- Profile of the applicants of the property development finance loan, such as CVs of directors, details about previous developments within the past five years
- Documentation on the success of these developments, including a description of their development costs, sale price, and project profits
- For borrowers with a limited history of development projects, the following information is needed:
- Name of Project Manager, link to their CV/Website
- Details of the Main Contractor
- Company Structure
- Statement of Assets and Liabilities of Applicants/Company Directors
How to ensure your development loans application is accepted
Getting together all your loan application requirements is one thing. Making sure that your application gets approved is another. Remember that a lender has a sea of applications to go through, so it’s important that you make them sit up and take notice.
Here are some things you can do to impress the lender and have your development financing application accepted:
You need to hit the right numbers and present them well. A professional and well-prepared application that ticks the lending criteria boxes have a higher likelihood of being accepted.
Don’t inflate your stats
As presented earlier, banks will look at figures, such as LTV, GDV, and other markers to evaluate whether your project is both viable and profitable for them. Inflating the end value of a property is a big no-no. Lenders will check for accuracy, so being dishonest about figures may discredit your entire application.
Own your application
Show confidence in your loan application. In other words, know the numbers by heart, identify pertinent information once asked, and describe specifics about your proposed project. When banks or lenders ask you about development costs, be prepared to answer them outright.
To get approved for a development loan, you’ll need to be impressive. However, a good impression may wither quickly if you make false claims about your experience or your track record of projects.
Even if you’re new to the development scene, banks and lenders will appreciate honesty and dedication. If your story does not check out, that will leave you with nothing but a bad reputation.
Ask the Experts
For your development finance needs, it’s best to err on the side of caution and ask the experts. We are a dynamic team of financial advisors and brokers who provide guidance and assistance on all matters related to finance. We are fully regulated by the Financial Conduct Authority and operate while adhering to the Data Privacy Act.
Contact us here to get started with your development finance requirements.