Whether you’re embarking on your first development project or you’re a seasoned developer, you’ll probably require development finance to get your scheme off the ground. Understanding how lenders decide on development finance applications helps determine your project’s feasibility.
Like all types of finance, lenders assess the risk versus reward when deciding whether and how much to lend to fund a development project. Each lender will have its own specific criteria, but most adopt a similar approach.
Ultimately, the lender seeks reassurance that the loan will be fully repaid. To determine this, it might look at the following:
Lenders will evaluate the feasibility of the proposed development project. This will take in to account the cost of the site, professional fees, infrastructure & construction costs, and sales values.
They will also assess the location, house type, market conditions, potential demand and profitability.
Lenders ideally want to see evidence of the developer’s experience, although this isn’t always essential. A developer with a successful track record gives lenders confidence. Likewise, having an experienced professional team of architects, surveyors, solicitors, and contractors enhances credibility and can mitigate lack of experience.
The developer’s financial position is crucial. Lenders will assess the developer’s credit history, current financial standing, resources and fall-back position.
Lenders will want to make sure that the development provides suitable security for the loan facility, alongside the borrowers’ own contribution to the project. The facility needs be sufficient to complete the project in full.
A solid development plan, detailed costings & program of works, supported by architectural drawings and evidence of planning permission, reassures lenders that the project is well-planned and viable.
Lenders require a viable exit route. A clear plan detailing how this will happen, through property sales or refinancing, will significantly help with loan approval. If refinancing, the case for that will also need to be made when applying for development finance.
Overall, lenders want confidence that the developer has the experience, financial strength, and support to complete the project and repay the loan. By thoroughly assessing the criteria above, they ensure they’ll only fund developments with strong potential for success.
With high stakes and many variables at play, using a broker is the best approach to finding a lender who’ll approve your borrowing application. At ASC, we will match your requirements to the right lender and know how to structure your application to maximise your chance of success. To secure the finance you need for your development project, get in touch.
