Property Development Finance – Make It As Easy As Possible
The property development sector seems to be almost as lively as ever, despite
the credit crunch and the uncertainties in the property market.
However, any development project, whether commercial or residential, requires a
lot of money. So it sometimes seems that raising the
property development
finance you require is the hardest part of the whole process.
There are a number of possible reasons for the difficulties you may encounter in
raising your property development finance.
- You may have problems in finding an adequate deposit. So, for instance, even if a lender offered you a 70 per cent development loan, which is a good offer, you still can’t go ahead because you have no way of raising the remaining 30 per cent.
- If you are new to the business, you may not realise the importance of the way you present your project to a potential lender. For instance, it’s important not only to plan and cost each stage of the project, but also to research the potential profitability of the development. If it doesn’t give the impression of being well thought out, the lender won’t be too impressed.
- If you lack experience, this very fact may count against you. When there is competition for scarce funds, lenders may prefer to go for applicants with a proven track record. Even when they do agree a loan to a newcomer, they are unlikely to go beyond 50% at the most.
- There are other ways of obtaining funding for development projects apart from the traditional mortgage route – for example, via mezzanine or equity funding, or planning gain finance. However, the inexperienced developer may not have the contacts in the business to be able to raise this type of funding.
So if you are a newcomer to property development and have been experiencing
difficulty in persuading lenders to lend to you – or if you are concerned that
you might have difficulty – what should you do?
Probably your best plan would be to seek out a lender who actually specialises
in property development finance. There are now an increasing number of these,
but if you don’t know where to find one, you should go to a
commercial finance broker. The broker
will be able to assess your proposal and find a selection of lenders who are
most likely to consider your project favourably. What’s more, the broker will be
able to identify any weaknesses in your proposal which might put lenders off,
and will be able to present it to the lender in the best possible light.
Nobody said raising property development finance was easy. It’s even less easy
for the first-timer – but everyone has to start some time. By going to the right
person and taking the right advice, you can maximise your chances of getting
your project off the ground.
E Berry May 2008
Please note that the FSA do not regulate commercial loans or commercial mortgages
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