Simplifying Development Finance to save money.
Bringing a development project from planning to execution is one of the toughest tasks modern developers face. Finding opportunities for development and putting plans in place is only the start; ensuring that a project is escalated according to schedule and fully financed throughout is a long journey, and one that requires careful planning and the right financial backing. As all developers know, it’s important to put the right foundations in place before a project gets under way, and the most crucial thing to get right is a project’s funding. There’s little else that can stop a project being brought to completion on time, and unstable finances can cause no end of difficulties for property developers.
In this article we discuss why bridging loans are such an important part of development finance, and what makes them uniquely suited to the property development environment. It’s important to mention that this sort of finance should only be sought under the advice of a professional, so anyone considering a bridging loan as a source of funding should consult their financial advisor first.
The Requirements of Development Finance
Although property development can vary widely depending on the individual project, there are certain aspects that they all have in common. Before discussing why bridging finance is so well-suited to property development, it’s important to understand precisely what the needs of property developers are. Firstly, a property developer’s job requires a high degree of leverage: a standard development project can easily cost many millions of pounds, and a developer who’s expanding their portfolio is unlikely to be able to finance that themselves. In fact, they’re likely to need a significant portion of the project’s budget to be financed by outside investors, and in many cases banks are reluctant to stump up the sort of LTV that’s necessary.
As well as needing a large amount of money, property developers will also often need a flexible and stable lending structure. The constraints of financing a development project usually mean that a developer has little in the way of capital on hand, which consequently means they’re keen to keep running costs down. With a standard loan, the cost of financing interest payments throughout the duration of the loan places a heavy burden on the developer’s bottom line, but bridging lenders are much more flexible.
Finally, a property developer might often need funds in a hurry. A development project may need to be jump-started as quickly as possible, and when every day counts it’s difficult to rely on the lengthy application process common to most high street banks. Being able to move quickly and adapt to changing circumstances is a must for many property developers, so an agile form of finance is necessary.