Development finance is a short-term loan that is used to in either developing or refurbishing a property or land. It is an ideal solution for property developers and investors looking to fund the construction or refurbishment projects using short-term funding options. It can be available potentially for all sizes of development projects, so the borrower might be able to borrow anything between several thousand pounds and a few hundred million pounds, based on the size of their business.
Many businesses, small and large, have already started leveraging development finance. It offers unique benefits that other types of loan cannot provide. Here, are some crucial benefits of taking out development finance.
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1 Quick to arrange
Property development projects are time-crucial for many developers. So, they want to get quick access to the funds and kick start the project as soon as possible. The only feasible way to raise a large amount of money for development projects is by using development finance.
Arranging development finance is faster than applying for a conventional loan. Funds can be raised in a short span of time, usually between one and four weeks, which enable the development project to get started while an alternate funding option is made available.
2 Less risk
Development finance is considered a low-risk loan because of their short-term nature. This may sound absurd that how a short-term loan can be considered a low-risk?
Since development finance is paid within 6 to 36 months, this reduces the risk of being burdened by debt for an extended time period or high early repayment fees if you wish to repay sooner.
3 Competitive interest rates
The interest rates for development finance are quite competitive, especially for experienced developers. Loan amount can be raised at a lower interest rate for bigger projects, and this rate can further be lowered if your gross development value (GDV) is higher than your borrowing amount.
Taking all these factors into account, the interest rate usually falls around 16% per annum. However, the interest rate can go as low as 5% per annum for experienced developers taking out development finance at a lower proportion of the GDV.
4 Roll up interest
With development finance, the interest is retained by the lender, which means there is no need to make any monthly payments. When the development project is complete, the loan amount is repaid along with the interest that has been accumulated.
This is generally suitable for both the lender and the borrower as the cash amount can be difficult to manage during the ongoing development. It eliminates the need of making monthly payments that make the loan easier to manage for all parties involved.
5 Available for a wide range of projects
Development finance is particularly useful for residential, commercial and mixed-use type properties. It can be used for new build or properties that require remedial works before being funded using traditional forms of loan.
Development finance can also be used for abandoned properties that would be impossible to get a mortgage for otherwise. This short-term loan allows property developers to refurbish and rebuild any property and sell it for a profit.
6 You can seize more time-critical opportunities
Traditional loans often restrict developers from undertaking complex projects. On the contrary, development finance enables developers to undertake more complex development projects than they would otherwise be able to take.
In addition, developers can also use bridging finance London to carry out several development projects simultaneously. It gives them flexibility to work on projects of varying complexity and size.
7 Limited capital required
Having some amount of capital is essential before undertaking any development project. Traditional loans may ask for you to pay upfront fees, which may hamper your cash flow if you have a limited capital.
On the other hand, development finance enables you to keep your capital intact, as there is no upfront payment required other than your deposit. This enables you to use the cash in hand for other purposes or simply improve your cash flow.
Who uses development finance?
As the name suggests, development finance is primarily focused for property investors and developers, who are looking to undertake extensive renovation or ground-up development projects. Funds are typically used to purchase the land or cover building costs.
Is development finance right for me?
Assessing your business requirements is the first step to determining whether development finance is ideal for you.
- Evaluate whether your business needs short-term or long-term financing.
- Evaluate your current financial condition to determine your ability to repay the loan on time without disturbing your finances.
- Finally, determine whether you can provide the necessary paperwork required to qualify for the development finance.
Final Words
Investors, builders and businesses looking for a short-term, quick loan can benefit from development finance London. The funds raised can be used to develop or renovate commercial, residential or mixed-use properties. It is advised to seek professional help from development finance advisors before you apply for the loan.
