Raising property development finance in the current climate is difficult but by no means impossible.
It is generally thought that banks are no longer prepared to lend on new development projects but this is untrue. There are now fewer lenders around today so the banks are able to ‘cherry pick’ the schemes where they are prepared to lend. I have been approached by developers who have been turned down for funding by their own bank yet having looked at the scheme there is often nothing fundamentally wrong with the project at all. What had let it down was the overall presentation, had it been presented in the correct way then there would have been a very good chance of it progressing.
Presenting a property development proposal to the bank
A good presentation is imperative and is often the difference between obtaining indicative terms and having the proposal declined from the outset. A good presentation should always start with a general overview of the project so there is an immediate understanding of what it is you are aiming to achieve. The lender will want to feel totally comfortable that you are capable of carrying out the project so a detailed CV is very important. This will need to be supported with a comprehensive summary of previous projects including photos wherever possible. The lender will want evidence that you have carried out similar projects in the past to the one you are now proposing. An overview of your current assets and liabilities should also be included together with a detailed development appraisal.
It is also good practice to include a copy of the planning approval, a copy of the plans and various photos of the site. The final part of the presentation should include a market report from at least one estate agent together with evidence of comparables in the area. The lender will want to feel comfortable at an early stage that there is likely to be sufficient profit in the scheme and that they have no concerns about getting their capital back. It is also important to be able to evidence the GDV as most lenders now base their lending criteria on the end sales value.
At this point you may find our “What is a business plan” article handy and our template of “Cashflows for Start-up Businesses”
Property development products in the market
So what is available in the market place in the current climate? If we look at the high street banks, those that are lending are currently lending at around 60% of costs. If we are looking for higher borrowing levels than this from a primary lender then we would need to look at the specialist lenders. These lenders tend to base the overall funding levels as a percentage of the GDV. There are a number of lenders that would consider lending at 50%-55% of the GDV, and others that would consider 65%-70% of GDV. Another option for consideration is looking at mezzanine finance providers. By combining mezzanine finance with primary finance it can sometimes work out more attractive than obtaining funding from one source.
Specialist property development finance broker
It can all seem quite daunting but it is the job of a specialist broker to deal with this on your behalf with the aim of obtaining the best possible terms for you. A good broker will also assist in compiling the required information and then produce a professional presentation for submission to lenders. For further information please contact David Nieman david@specialistfinance.net
Author Bio:
David Nieman has over 30 years experience in arranging finance for Ltd Companies and individuals. During this time he has built up excellent working relatioships with lenders often dealing directly with the decision makers.
David J Nieman
T: 01276 537 247 M: 07887 681 748
