How to get your development finance application approved
Many borrowers fall at the application stage when trying to obtain development finance.
Here’s how borrowers can boost their chances of getting the best possible terms.
What’s the most important factor a borrower should consider when approaching a lender?
Preparation – Make sure you know everything about a project you’re taking forward or putting in front of a financier. Lenders will go through everything with a fine-tooth comb and ask a range of questions about the potential development or investment project.
Timing – Allow time to get your finance in place because people will be asking more questions, be more diligent and there will be even more professional surveys to go through to make sure everyone has their indemnities and warranties in place.
Data – Analysis and due diligence from a developer or investor is important, you always need some data points to take into the lender, you can’t just rely on advice.
Credibility – Most lenders agree that they complete one loan for every 25 enquiries they see. That means you have a one in 25 shot, so don’t turn up with a half-baked case because you’ll be one of those 24.
How important is it to be upfront with a lender?
Transparency – Explain what the issues have been, where there might be any adverse press or history of difficulties with the site, and let the lender take a view. Don’t hope it will be OK and that the deal goes through because unfortunately it won’t.
How do you find the right lender for your project?
Research – Review the whole market, there are now hundreds of ways to finance a project. Choosing the right lender or a combination of lenders can vary based on each project.
Don’t scattergun – Don’t send the deal to every lender in the market. Lenders will question why no others have not progressed the deal.
What do you do if there are risks involved in your project?
Expert Advise – Use a quantity surveyor or another expert to look at the site and identify areas of concern, so you can show you’ve thought about it from a lender’s perspective. This builds credibility and means the borrower will be offered better terms.
If you’re a first-time developer the lender will see you as a higher risk. To mitigate that, you can surround yourself with very experienced professionals. It also may be a good idea to get a seasoned property developer to become a part of your shareholding.
How do you pick the right partners?
Understand your Partners – Knowing the people you’re going into business with is essential. Understand their financials, their trading and whether there are any issues coming up. The same goes for contractors on the build side; it’s important to look into their turnover, how profitable they are as a business and what their balance sheet looks like.
Recommendations and References – It’s worth knowing if a potential partner has worked with someone you know, and a personal recommendation goes a very long way. Try to get a reference at the very least.
How can I find deals in the current market?
Key Contacts – Leveraging your network is important. Connections with agents, other developers and other people in the space like construction lawyers will be beneficial as they will come across opportunities.
How important are guarantees and using your own equity?
Borrowing over 50% – To borrow more than 50%-55% loan-to-value on any scheme and you’re going to need to provide some sort of personal or corporate guarantee. A borrower can put up other assets in their portfolio as collateral and allow second charges.
Borrowing below 50% – If you want to borrow sub-50% loan-to-value then the security of the asset will probably be enough.
Align with Investors – Agree with your equity partner early on who’s going to be putting up the personal or corporate guarantees on the different deals, so there are no surprises later on.
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