Construction developers face numerous challenges when transforming ideas into physical structures. These challenges can be both internal and external. For instance, economic uncertainties presented by Brexit and the recent COVID-19 pandemic have given UK developers a hard time scaling their projects.
Many developers have discovered development finance solutions as fast way to settle capital and other running costs. But development finance loans, like any other loan, come with their pros and cons. Therefore, it’s essential to ask ‘is development finance viable for me’ before starting the application process. This guide can help you every step of the way through the entire process.
What Is Development Finance & How Does It Work?
Development finance is a type of loan given to both experienced and first time developers to raise their capital, aiding them to transform developing ideas into profitable properties. Developers can apply for development finance at different stages, from the ground level to ongoing projects.
Development finance loans differ from traditional loans like mortgages in many ways. For instance, development finance lenders consider a property’s value at the project completion phase. In contrast, mortgage lenders may consider this value at earlier project stages. Despite these differences, development finance works similarly to other application processes. First, you apply with details about your development costs, build timescales, property and professional fees, etc.
Lenders will run multiple credit checks, after which they can approve or decline your request. Factors they consider for approval include credibility and accountability. The more transparent and promising your financial numbers, the better your chances.
Lengthening Your Terms
Many development finance loans have a duration of 3-24 months. But developers can opt for extensions on their loans, especially when the duration is likely to lead to project delays and other traditional construction issues, this is known as refinancing. Brexit and the recent COVID-19 pandemic have delayed construction projects. In addition, property developers have had to pause projects over cost uncertainties as a result of shortages of skilled workers, long delivery times and rising fuel prices
Enlisting trusted brokers to manage your refinancing commitment is a surefire way of assisting your chances of getting your extension requests completeed. It all depends on your refinancing commitment. Ensure to acquire your property refinancing commitment from a trusted broker who doesn’t demand fees earlier than you expect. It can help you manage your project costs efficiently.
Lowering Costs
Cutting costs on your finance development journey can take many forms. For instance, dealing with brokers who don’t demand fees earlier than when your value accrues can save you from unexpected costs.
Development finance also helps you manage ambitious projects with minimal cost implications. It allows you to invest your entire resources in completing building projects because you can keep the interest that builds on your loan.
Why You Should Consider Taking It Out
Loan acquisition comes with specific requirements. You can consider taking development finance if you have the right paperwork and are confident about repaying your loans.
Development finance loan acquisition comes with fixed costs like arrangement and exit fees. Often, these fixed expenses may be higher than what you expect for traditional mortgage loans.
Therefore, you should only consider development finance if you’re ready to factor these costs into your plans.
Generally, development finance is an alternative to avoid project delays and increased fees. And this guide can help you understand why development finance is viable for your construction project requirements and business goals.