Whether you are a professional developer or have the ambition to generate a small portfolio of properties, here are a few tips that can assist in raising some capital.
Things to consider:
- Loan to Value: Our lenders and bridging financiers do expect you to have some skin in the game, typically representing between 25% (property) to 50% (land). This can be funds from your savings, co-investors, leveraging existing property owned – or maybe raised through unsecured private equity funding. In any event, the lender will typically take a first charge over the property being developed or funded.
If you have other property where a charge may be taken, then the possibility of borrowing up to 100% of the requirement exists.
- Purpose: Funds may be borrowed to purchase and convert property, or to purchase land, or build from the ground up. Lenders will take a view on whether the change of use is appropriate; if the work is light or moderate; and if a ground up development is considered, then they will fund in stages (in arrears).
- Structure: Most of our client developments are under the control of an SPV, often formed for the specific purpose of the project. Some borrowers manage more than one asset through a holding company, and in those cases we can underwrite the business and not just the transaction. In some scenarios this may prove valuable, particularly if the commercial loan is structured using the assets of the business and not simply the transaction.
- Financial Planning: Having a plan is important. Nobody really wants a detailed financial plan – but where a short term bridge is not being considered, then a 3-5 year cash flow projection will always add value to the proposal. Having a thought-out exit plan is critical. As is having a back-up plan! No two transactions are the same, and you may want to hold some properties, refinance or sell to exit. You may want a short term loan with interest rolled-up, a long term mortgage or some other structure – or for a smaller amount maybe an unsecured facility.
- Experience: Finally, the lenders will want to know that you have some skills or experience. If you are new to development, the expectation will be that you will have a jv partner working with you, coupled to an experienced builder – who may add value to the process and has demonstrated successful builds, or flips in the past.
Borrowing money is not a minefield, and nor is it particularly arduous. Quotes can be provided quickly, but a secured process will inevitably take much longer than an unsecured fdacility. We are here to talk and walk you through the process, and will endeavour to contribute in making your plans and dreams a reality.
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