The Role of Development Loans in Property Projects

Property Development loans, particularly tailored products like Alternative Bridging Corporation’s Development Loan, are fundamental for turning ambitious property projects into reality.

Development finance loans are specialised short-term loans designed to fund property development projects. These loans are typically used for ground-up construction, extensive renovations, or large-scale property expansions. Unlike traditional mortgages, development finance loans are structured to cover the various stages of a development project, providing necessary capital when it is needed most.

When applying for a development finance loan, it’s essential to understand what lenders prioritise and require. Here are some key factors that lenders, such as Alternative Bridging Corporation, typically consider:

A well-structured business plan:

A comprehensive business plan is a must. This document should outline the project’s feasibility, detailed costs, expected returns, and a clear exit strategy. A well-structured plan reassures lenders that the project is viable and that the loan will be repaid on time.

Developer experience and track record:

Lenders prefer working with developers who have a proven track record of successful property development. Experience reduces the perceived risk and increases the likelihood of loan approval.

Collateral:

Providing sufficient collateral is another critical factor. Lenders need to ensure that they can recover their funds if the project does not go as planned.

Understanding the market:

A deep understanding of the property market is essential. Lenders will assess whether the developer is aware of market trends, potential risks, and opportunities.

Exit strategy:

A clear and realistic exit strategy is vital. Whether the plan is to sell the completed properties or refinance them with a long-term mortgage, the lender needs to see a feasible path to loan repayment.

Project planning and presentation:

How the project is presented can make a significant difference. A well-organised presentation that clearly communicates the project’s goals, timelines, and financial projections will instil confidence in the lender.

Development Loan from Alternative Bridging

Alternative Bridging offers development finance loans up to £2m, typically serving clients with a turnover between £250,000 and £2m. One of their standout products, the Development loan is designed for experienced property developers. This loan provides up to 80% of the total development cost, offering a streamlined solution for developers seeking to maximise capital efficiency.

Key Features of the Development Loan:

• Security: First charge, debenture (Limited Companies and LLPs), personal guarantee (Limited Companies and LLPs)
• Loan amounts: £500,000-£2m
• Maximum gearing: 80% Loan to Cost (LTC), 70% Gross Development Value (GDV)
• Target projects: Residential development projects within a 200-mile radius from London

The Development loan simplifies the financing process, offering one competitive interest rate without the need for mezzanine financing. This reduces professional fees and provides a cost-effective solution for developers.

Checklist for Securing a Development Finance Loan:

• Assess project feasibility: Ensure your project is realistic and achievable within the proposed budget and timeline.
• Prepare a detailed business plan: Include all relevant financial projections, costs, and a clear exit strategy.
• Gather required documentation: Have all necessary paperwork ready, including proof of experience, collateral details, and market analysis.
• Understand lender requirements: Familiarise yourself with the specific criteria of your chosen lender, such as loan size and maximum gearing.
• Present your project effectively: Organise your project details in a clear, professional manner to instil confidence in potential lenders.

Case Study: Development Finance Kent Auction

A longstanding client of Alternative Bridging Corporation identified a well-located office building in Kent, with plans to convert it into residential units, but required urgent financing. Alternative Bridging Corporation stepped in with a Development loan, allowing the client to complete the auction purchase. The Development loan was provided at a competitive rate, with stage payments structured to fund the entire conversion process. This enabled seamless progress from purchase through to the completion of the residential units.

To find out more about our property development loans or talk to one our property development experts, call 020 8349 5190 or contact us by filling out our simple form.